Differences Between GDP and GNP
Gross Domestic Product (GDP) and Gross National Product (GNP) are considered to measure a country’s annual output, where Gross Domestic Product (GDP) is a measure of national production during the whole year. In contrast, Gross National Product (GNP) measures the annual output or manufacturing by a country’s citizens in their home country or abroad. Hence, the country’s border is not considered in the 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, generally yearly or quarterly. However, the 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.
Table of contents
What is GDP?
The total market value of the goods and services produced in a country within a certain time is known as a Gross Domestic Product (GDP). It is the most widely used measure of the size of a nation’s economy. However, it includes only newly-produced goods and services purchases and does not include the sale or resale of goods produced in previous periods. In addition, 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 machines. 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.
- 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 infrastructureInfrastructureInfrastructure refers to fundamental physical and technological frameworks that a region or industry establishes for its economy to function properly. 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.. GNP vs. GDP is valued at its cost to the government.
- The Gross Domestic ProductGross Domestic ProductGDP or Gross Domestic Product refers to the monetary measurement of the overall market value of the final output produced within a country over a period. stands for the monetary measure of all the finished goods and services produced within a country’s borders in a specific period. Though GDP is usually calculated annually, it can be calculated every quarter.
The following formula can calculate GDP:
- C= Total Private Consumption
- I= Total Investment Amount
- G= Government Spending
- X – M= Difference between the export and import of a country
What is GNP?
Gross National Product (GNP) estimates the total measure of all final products and services produced in a given period utilizing 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., and any income earned by residents from overseas investmentsInvestmentsInvestments are typically assets bought at present with the expectation of higher returns in the future. Its consumption is foregone now for benefits that investors can reap from it later., 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.
- NR= Net Income Receipts
- NP= Net outflow to foreign assets
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GDP vs. GNP Explained in Video
GDP vs GNP Infographics
Depending on certainty, a country’s GDP can be higher or lower than its GNP. It depends on a given country’s domestic to foreign production ratio.
For example, according to public data available on various platforms, China’s GDP is $300 billion greater than its GNP due to many foreign companies producing in the country. In contrast, 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.
- The aggregate of all the goods and the services generated within the country’s geographical limits is GDP. And the aggregate of all the goods and services rendered by the country’s citizens is known as GNPGNPGNP or gross national product of a country measures the overall market value of products and services offered by its citizens and businesses domestically and internationally over a given year..
- Gross Domestic Product considers the production of products within the country’s boundaries. On the other hand, Gross National Product measures the production of products by the companies, industries, and other firms of the country’s residents.
- The fundamentals for calculating the Gross Domestic Product are location, while Gross National Product is based on citizenship.
In the case of Gross Domestic Product, productivity is calculated on a country’s scale. So, 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 Gross National Product only considers individuals, firms, and corporations.
- Gross Domestic Product measures the strength of a country’s domestic economyEconomyAn economy comprises individuals, commercial entities, and the government involved in the production, distribution, exchange, and consumption of products and services in a society.. On the other hand, the Gross National Product measures how the residents contribute 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 time, generally 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 out 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 learn how the residents are contributing to the economy.|
The key to distinguishing between these two is that while calculating GDP Calculating 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 + NX, we have to consider all the things produced within the country’s borders. Therefore, it also includes the goods and services produced by foreign nationals. On the other hand, while we talk about the GNP, we only consider the production done by the country’s residents, whether within or outside the country, and the output of foreign citizens is not included.
This article has been a guide to GDP vs. GNP. Here, we discuss key differences between GDP and GNP, infographics, and a comparative table. You may also have a look at the following articles: –