In the present day world, it is not uncommon to stumble across these two words, GDP and GNP often. GDP which stands for Gross Domestic Product. And GNP which stands for Gross National Product, are the keys to evaluate the economic strength and advancement of a country. The simplest parameter of differentiating between these two is the geographical borders of the country concerned.
GDP vs GNP
The main difference between GDP and GNP is quite easy to comprehend as GDP is measured within a country’s defined boundary whereas GNP is calculated taking into report both domestic and foreign monetary activities. These two phrases have some other little differences too based on how foreign and non-residential citizen’s income is evaluated.
GDP is the metric that’s most commonly used to measure the economic growth and present size of a country’s economy. It is the total monetary value of the finished commodities, goods, services, produced within the boundaries of a nation (domestically) over a specific time phase, mostly it’s measured yearly.
GNP, on the other hand, is the procedure to compute the monetary growth of a country that’s made by all of its citizens residing both within the country and outside the country. For instance, an Indian resident working in the United States can contribute to the country’s GNP if he has the citizenship of India. It doesn’t have a stipulated boundary. However foreign inhabitants in a country cannot stimulate the growth or decrease of GNP.
Comparison Table Between GDP and GNP
| Parameters of difference | Gross Domestic Product | Gross National Product |
| Boundary | It is measured within the boundary of a country | It is measured both within and outside the boundaries of a country |
| Non-residential citizens | Non-residential citizens contribute to a country’s gross domestic product | Non-residential citizens will not contribute to a country’s Gross National Product unless they have dual citizenship |
| Foreign citizens | Foreign citizens income is included as a part of Gross Domestic Product if they work within the country. | Foreign citizens income is not included in a countries GNP. |
| Ownership | Companies\\factories within a country boundary contribute to gross national product irrespective of ownership | Companies belonging to a particular country contributes to their Gross National product, irrespective of who works in it. |
| Formula of calculation | GDP = consumption + investment+ spending by government + exports | GNP = GDP + (money flow IN foreign countries – money going TO foreign countries) |
What is GDP?
The GDP of a country is the consumption, investment, government spending and exports within a countries boundary. Non-residential citizens who send their money to their own country, contribute to the GDP of their country. Also if foreign citizens work inside India their earning is a part of GDP
The rather simple method to calculate GDP is the sum of consumption, investment, spending by the government which also includes the other expenditures made by the government. It is one of the most important systems to calculate a country an economic activity, growth and also reflects the living standards of people of that very country.
Foreign citizens who own a company or their own industry within the territories of India also pay to the government is included in the country’s GDP. GDP is mainly of four varied types which include – Real GDP followed by nominal GDP, then comes actual GDP and finally possible GDP.
Taking a simple example, if a Miniso store is present within India, it contributes to India’s GDP while it pays taxes to the government. Also, Indian employees working in that store when spending the money inside the country contributes to GDP. Apart from these any business which is owned by a country any profit it makes, production of finished goods, investments made within a country are all a part of that country’s GDP.
What is GNP?
The term GNP implies the accumulated amount of consumption, along with investment, exports and expenditure of the government. This includes actions both within and outside of the border of a country. Non-residential citizen’s income isn’t included in the issue of dual citizenship it will be comprised within GNP.
The simple words GNP is the sum of GDP and the money flowing in another foreign country (belonging to this country,) and negating the money flow to a foreign country). GNP is mainly derived from the GDP.
Based on the formula we can say that the income of foreign residents isn’t included in the country’s GNP even if they invest it within that same country. It becomes the GNP of the country they originally belong to.
Taking an example to explain this concept of GNP, if an Indian citizen lives in the United States and has citizenship of India, all earnings by him are included in the GNP of India. Another simple example can Pizza hut which belongs to the united states, if present in Japan any profit made by the company contributes to the gross national product of the united states but it contributes to the GDP of Japan when it pays tax to the Japanese governing authorities.
Main Differences Between GDP and GNP
- The gross domestic product includes the economic values of all finished goods and services that are done within the boundary of the country. the gross national product however measures all economic activities of a country’s citizens both inside and outside the country’s national boundaries.
- The income by non-residential citizens when sending their money into their own country promote the GDP growth of their own country. Whereas non-residential citizens do not contribute to the GNP of their own country.
- Foreign citizens who work in a company present in another country, contribute to the GDP of that country. however foreign citizens income isn’t considered while calculating GNP
- Industries, companies and factories present inside the country contribute to its GDP irrespective of ownership. Whereas industries, companies and factories owned by the citizens of a particular country contribute to its GDP, respective of its location.
- Gross Domestic Product is calculated using the formula –
GDP = consumption + investment+ spending by government + exports.
Gross national product is measured by the formula – = GDP + (money flow IN foreign countries – money going TO foreign countries.
Conclusion
These two factors of gross domestic product and gross national product are considered as key metrics to calculate countries economic conditions. While GDP is most commonly used for this calculation, GNP which is derived for it has also become an important device of measurement.
The values of GDP and GNP of a country are never the same because the location and ownership are concerned. They have different values which can be calculated using their respective formulas. there mingy me abnormalities and several rules for foreign owner companies because sometimes some investments can be part of GDP and not GNP. The vice versa is also possible.
Reference
- https://www.sciencedirect.com/science/article/pii/S0301421501000179
- https://www.researchgate.net/profile/Jannatul-Bristy/publication/314484207_GDP-GNP_Gap_Trade-Off-is_it_Significant_for_Economic_Performance_Review_of_World_Economies_Having_Both_Gaps/links/5d09b0f7a6fdcc35c1592fa7/GDP-GNP-Gap-Trade-Off-is-it-Significant-for-Economic-Performance-Review-of-World-Economies-Having-Both-Gaps.pdf