Differences Between GDP and GNP
To measure country’s annual output, both Gross domestic product (GDP) and Gross national product (GNP) are considered where gross domestic product (GDP) is a measure of national production during the whole year whereas gross national product (GNP) is the measure of annual output or production by country’s citizen whether in home country or abroad and hence country’s border is not considered in GNP calculation.
Gross domestic product considers the market value of all final goods and services produced by factors of production such as capital and labor located within a country or economy during the given period of time, generally a yearly or quarterly. However, Gross national product considers the market value of all final goods and services produced by factors of production such as capital and labor supplied by citizens of a country, regardless of whether this similar production takes place internally within the province or outside of the country.
What is GDP?
The total market value of the goods and services produced in a country within a certain time period is known as a Gross domestic product (GDP). it is the most widely used measure of the size of a nation’s economy. It includes only purchases of newly-produced goods and services and does not include sale or resale of goods produced in previous periods. The transfer of payments made by the government such as unemployment, retirement, and welfare benefits are not economic output and are not included in the calculation of GDP.
- The values used in calculating GDP are the market values of final goods and services—that is, the value of the vehicle engine that Toyota makes is not explicitly included in GDP; their value is included in the final prices of Vehicles that use the engines. Similarly, the value of a Rembrandt painting that sells for 15 million euros is not included in the computation of GDP, as it was not produced during the period.
- The goods and services provided by the government are covered in GDP even though they are not explicitly priced in markets. For instance, the services provided by police or the judiciary, and goods such as highways, dams and infrastructure improvements, are included Because these goods and services are not sold at market pricesMarket PricesMarket price refers to the current price prevailing in the market at which goods, services, or assets are purchased or sold. The price point at which the supply of a commodity matches its demand in the market becomes its market price.read more, GNP vs GDP is valued at their cost to the government.
- The gross domestic product stands for the monetary measure of all the finished goods and services produced within a country’s borders in a specific time period. Though GDP is usually calculated on an annual basis, or it can be calculated on a quarterly basis as well.
GDP can be calculated by the following formula:
Where,
- C= Total Private Consumption
- I= Total Investment Amount
- G= Government Spending
- And, X – M= Difference between the export and import of a country.
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For eg:
Source: GDP vs GNP (wallstreetmojo.com)
What is GNP?
Gross national product (GNP) stands for an estimate of total measure of all the final products and services produced out in a given period by the means of production owned by the country’s residents. GNP is usually calculated by taking the sum of individual consumption expenditures, private domestic investment, government expenditure, net exportsNet ExportsNet exports of any country are measured by calculating the value of goods or services exported by the home country minus the value of the goods or services imported by the home country. It includes various goods and services exported and imported by the government, like machinery, cars, consumer goods.read more and any income earned by residents from overseas investments, minus income earned within the domestic economy by foreign residents. Net exports represent the difference between what a country exports minus any imports of goods and services.
Where,
- NR= Net Income Receipts
- NP= Net outflow to foreign assets
GDP vs GNP Infographics
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For eg:
Source: GDP vs GNP (wallstreetmojo.com)
Example
Depending on certainty, the GDP of a country can be either higher or lower than its GNP. It depends on the ratio of domestic to foreign producing in a given country.
For example, China’s GDP is $300 billion greater than its GNP, according to public data available at various platforms, due to the large number of foreign companies Producing in the country, whereas the GNP of the U.S. is $250 billion greater than its GDP, because of the greater amounts of production that take place outside of the country’s borders.
Key Differences
- The aggregate of all the goods and the services generated within the country’s geographical limits is known as GDP and the aggregate of all the goods and services generated by the citizens of the country is known as GNP.
- GDP considers the production of products within the boundaries of the country. and on the other hand, Gross national product measures the production of products by the companies, industries and all other firms owned by the country’s residents.
- The fundamentals for calculating the gross domestic product is the location, while GNP is based on citizenship.
- With the case GDP, the calculation of productivity is done on a country’s scale while we talk about a gross national product, its calculation is the productivity on an international level.
- Gross domestic product focuses on calculating domestic production, but GNP only considers the production by the individuals, firms, and corporations, of the country.
- GDP measures the strength of a country’s domestic economy. On the other hand, the gross national product measured how the residents are contributing to the country’s economy.
GDP vs GNP Comparative Table
| Basis for Comparison | GDP | GNP |
|---|---|---|
| Definition | Gross domestic product considers the market value of all final goods and services produced by factors of production such as capital and labor located within a country or economy during the given period of time, generally a yearly or quarterly. | Gross national product considers the market value of all final goods and services produced by factors of production such as capital and labor supplied by citizens of a country, regardless of whether this similar production takes place internally within the province or outside of the country. |
| Measurement | Measures only domestic production. | Measures production by the nationals. |
| Includes | The production of goods and services by foreigners within that country. | The production of goods and services by its citizens outside of the country. |
| Excludes | The production of goods and services by its citizens outside of the country. | The production of goods and services by foreigners within that country. |
| Widely used | To study the outlines of the domestic economy. | To study how the residents are contributing to the economy. |
Conclusion
The key to the distinguishing point between these two is that while calculating GDPCalculating GDPGDP or gross domestic product refers to the sum of the total monetary value of all finished goods and services produced within the border limits of any country. GDP determines the economic health of a nation. GDP = C + I + G + NXread more, we have to take into consideration all the things which are produced within the borders of the country and that it includes the goods and services which are produced by the foreign nationals also. While we talk about the GNP, we only consider the production done by the country’s resident, whether they are within or outside the country and the production of foreign citizens are not included.
GDP vs GNP Video
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