GDP vs GNP: What's the Difference?
GDP vs GNP: What’s the Real Difference and Why It Matters
In economics, Gross Domestic Product (GDP) is used to calculate the total value of the goods and services produced within a country’s borders, while Gross National Product (GNP) is used to calculate the total value of the goods and services produced by the residents of a country, no matter their location.
Essentially, GDP looks for the amount of economic activity within a nation’s economy, while GNP looks at the value of the economic activity generated by the nation’s people.
This means that GNP will count the economic activities of expatriates and other citizens outside the country’s borders, but GDP will not, and that GDP will consider the activities of non-citizens within those borders, but GNP will not.
In this article you will know what GDP and GNP are and which is considered better – GDP vs GNP.
Key Takeaways:
1. Gross domestic product (GDP) and gross national product (GNP) measure a country's aggregate economic output.
2. GDP measures the value of goods and services produced within a country by citizens and non-citizens.
3. GNP measures the value of goods and services produced by a country's citizens, domestically and abroad.
Gross Domestic Product (GDP)
GDP helps indicate the health of a country's economy. This metric counts the market value of all goods and services produced domestically.
The gross domestic product measurement shows whether the economy is growing or contracting.
The components of GDP include:
- Consumption: The value of the consumption of goods and services acquired and consumed by the country’s households.
- Government Spending: All consumption, investment, and government payments for current use.
- Capital Spending by Businesses: Spending on purchases of fixed assets and unsold stock by private businesses.
- Net Exports: The country's balance of trade (BOT), or the difference between exports and imports. A positive number indicates that the country exports more than it imports.
How to Calculate GDP?
There are two methods of calculating GDP. They are:
- Expenditure approach
- Income approach
The expenditure approach takes into account adding up all the amount spent on goods and services during the period.
GDP = C + I + G + (X – M)
Where,
C = Consumption spending
I = Business investments (Capital equipments, inventories)
G = Government purchases
X = Exports
M = Imports
Income approach: Under the income approach, the GDP is calculated by adding up three factors.
GDP = National income + Statistical discrepancy + Capital consumption allowance
What is GNP?
GNP is known as gross national product and represents the total value of goods and services produced by the residents of a country during a financial year.
It takes the income earned by the citizens of the country present within or outside the country into consideration.
It excludes the income generated by the foreign nationals who are residing in the country. It can be calculated as:
GNP = GDP + NR – NP
Where,
GDP = Gross domestic product
NR = Net income receipts
NP = Net outflow to foreign assets
What Is the Difference - GDP vs GNP?
When comparing GDP vs GNP, it's important to understand how each metric reflects a nation's economy.
GDP vs GNP highlights the difference between domestic production and total national income.
Analysts often use GDP vs GNP to assess economic health from different perspectives.
Whether you're a student or a policymaker, knowing the GDP vs GNP distinction is essential for accurate economic analysis.
Explore the table below to see GDP vs GNP compared side by side.
| GDP | GNP |
Definition | |
| The value of goods and services produced within the geographical boundaries of a nation in a financial year is termed as GDP. | The value of goods and services produced by the citizens of a nation irrespective of the geographical limits in a financial year is known as GNP. |
What Does It Measure? | |
| It measures only the domestic production. | It measures only the national production. |
Emphasis | |
| It emphasises on the production that is obtained domestically. | It emphasises on the production that is achieved by the citizens living in different nations. |
Highlights | |
| It highlights the strength of the country’s economy. | It highlights the contribution of the residents to the development of the economy |
Scale of Operations | |
| Local scale | International scale |
Excludes | |
| The goods and services that are being produced outside the economy are excluded. | The goods and services that are produced by the foreigners living in the country are excluded. |
Which is better for measurement? - GDP vs GNP
It is a very common question in the debate of GDP vs GNP and there is no finite answer for it.
But GDP is the most popular metric for the overall productivity of a country's economy.
GNP was formerly the default measure for a country's economic production, but it fell out of favor by the 1990s
The Bottom Line
Gross national product (GNP) and gross domestic product (GDP) are popular metrics for measuring the productivity of a country's economy.
GDP measures productivity within a country's geographical boundaries, and GNP records economic activity by that country's citizens and businesses, regardless of location.
One cannot answer the debate – GDP vs GNP – because there are numerous factors which are to be taken into consideration. Hence, rather than GDP vs GNP, it should be 'Where GdP is more suitable and Where GNP is more suitable?'
EduSure has developed the best and most structured programme to help students crack the Masters in Economics Entrance Exams. With a legacy spanning 14 years, EduSure boasts consistent top rankings in prestigious institutions like DSE, JNU, IGIDR, and IIT.
Student Testimonials and Success Stories:
Discover the success stories of EduSure students by visiting our YouTube channel: YouTube. Hear firsthand experiences from students who have achieved their dreams with our guidance.
Speak to an EduSure Student Counsellor:
For personalised advice and to speak to an EduSure student counsellor, call us at 8100824600/01. Our counsellors are here to help you every step of the way.
Faculty Spotlight
Samkith Banthia: ISI Alumnus, Eco(H) St. Xavier's Kolkata, FRM from GARP, Formerly with Barclays Bank.
Samkith Sir transitioned from a successful banking career to teaching and mentoring aspiring students. With his expertise in mathematics and a nurturing demeanour, he is dedicated to guiding students toward academic excellence.
Mahima Banthia: DSE Alumnus, Eco(H) SRCC Delhi, Former Lecturer at St. Stephen’s College Delhi, UGC NET qualified.
In Mahima Ma’am’s class, we prioritise logical reasoning and emphasise conceptual understanding, ensuring mastery of macroeconomics. Mahima Ma’am also handles administrative responsibilities at EduSure, ensuring the highest quality service to every student.
Join the EduSure Program:
To enrol in our courses, drop in your details at EduSure Form, and we'll get back to you as soon as we can.
Email us: