Top 6 Difference Between GDP and GNP
The national income is an important macroeconomic variable which helps determine the economic stability of any nation. The total income a nation receives from all economic activities during a given year is the national income.
The preferred method of calculation the national income is based on two concepts: GDP and GNP. Gross domestic product (GDP) and gross national product (GNP) are two terms that describe the same thing.
What is GDP?
Gross domestic product (GDP) is the most widely used indicator to measure the size of an economy. It is the total value of all goods and services produced by a nation in a given financial year.
The GDP includes the purchase of newly produced products and services during a given period. The GDP is calculated by taking into account the total value produced within a country’s borders. This is regardless of whether it is a value added by residents or non-residents.
There are two ways to calculate GDP. There are two methods of calculating GDP.
- Spending approach
- Earnings Approach
The expenditure method involves adding up the total amount spent during the period on goods and service.
GDP = C + I+ G + (X-M)
Where,
C = Consumption expenditure
I = Investments in business (equipment, inventories).
G = Government purchases
Exports = X
M = Imports
The income approach is a method of calculating GDP by adding three factors.
GDP = National Income + Statistical discrepancy plus Capital Consumption Allowance
What does GNP mean?
The gross national product (GNP) is the total value produced by residents in a particular country over a given financial year.
The income of citizens is taken into account, whether they are in the country or not. It excludes income from foreigners who reside in the country. Calculated as:
GNP = GDP + NR-NP
Where,
Gross Domestic Product = GDP
NR = Net income receipts
NP = Net Outflow of Foreign Assets
In the table below, we will examine the main differences between GDP (gross domestic product) and GNP.
Top 6 Differences Between GDP and GNP
| Aspect | GDP (Gross Domestic Product) | GNP (Gross National Product) |
|---|---|---|
| Definition | The value of all goods and services produced within a country’s geographical boundaries during a given financial year. | The value of goods and services produced by a nation’s citizens during a given financial year, regardless of their location. |
| What Does It Measure? | Measures only domestic production. | Measures national production, focusing on citizens. |
| Emphasis | Emphasizes domestic economic activities. | Emphasizes the economic contributions of citizens, regardless of location. |
| Highlights | Highlights the overall strength of the domestic economy. | Highlights the contribution of residents to the nation’s economic development. |
| Scale of Operations | Operates on a local (domestic) scale. | Operates on an international scale. |
| Excludes | Excludes goods and services produced outside the country. | Excludes goods and services produced by foreigners within the country. |
This comparison provides a clear understanding of the key differences between GDP and GNP, helping students and readers build a strong foundation in economic concepts.