What Is GNP (Gross National Product)?
GNP 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. It, thus, excludes the economic output from foreign nationals or corporations within the nation.
In other words, GNP is the monetary worth of goods and services produced utilizing the means of production owned by a country’s residents and companies, regardless of their location. Governments use this data to estimate manufacturing, employment, savings and investments, inflation, etc., and make laws accordingly. It differs from GDP that considers the total value of products made inside the borders of a state.
Table of contents
- GNP in economics is a metric that calculates the total market value of products and services offered by a country’s people and enterprises both domestically and internationally over a year.
- It considers the ownership of means of production rather than the location and is adjusted for inflation and calculated using either the spending or income approach.
- The gross national product enables governments to analyze manufacturing, employment, savings and investments, the export-import trade, inflation, poverty, etc.
- It is different from GDP in that the latter measures the total economic production by domestic and foreign nationals or corporations operating within the country in a year.
GNP (gross national product) considers the value of commodities offered and services rendered by an individual or company within and outside its native country. It includes all tangible items like food, automobiles, machinery, and services like education, healthcare, financial services, salaried income, etc.
For instance, the income of a Canadian immigrant working in the United States or revenueRevenueRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions. of an Indian company from its branch in Australia will count toward the gross national product of their home country. Thus, GNP serves as an economic indicatorEconomic IndicatorSome economic indicators are GDP, Exchange Rate Stability, Risk Premiums, Crude Oil Prices etc. , reflecting a nation’s income from domestic and international activities.
It includes the total domestic and foreign economic output by the human and commercial resources of a country. It excludes production or income by any foreign entity within the country in its calculation. Furthermore, it considers taxes and depreciation and uses either the spending or income approach to calculating GNP, like GDPGDPGDP 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., which is adjusted for inflation to compare the output and income to previous years. The domestic ownership of the means of production, rather than the domestic location, is the defining element in the latter. Therefore, its calculation involves GDP plus net income influx from abroad minus net income outflow to foreign nations. However, in the case of dual citizenship, both countries will factor the value of their output or income when calculating GNPs.
GDP vs. GNP Explanation in Video
Formula Of GNP
The GNP meaning describes the total market value of goods and services produced both inside and outside the country by a resident or firm. Hence, its formula is different from GDP, i.e.:
Y = C + I + G + NX + Z
C = Consumption expenditures
I = Business Investments
G = Government expenditures
NX = 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. (exports – imports)
Z = Net income (Net income of domestic residents or firms from overseas investments – Net income of foreign residents or firms from domestic investments)
It is clear from the GNP formula that it is the sum of GDP + Z. GDP measures the gross value of finished goods and services produced by domestic and foreign residents and corporations inside the country. On the other hand, gross national product subtracts their outputs to get the actual value of total economic production. It also helps in estimating the gross national income.
Gross National Product Example
Let us look at the following GNP examples to know how it works:
Microsoft, a technology firm located in the United States, operates in many nations and offers products and services worldwide. In this case, its overall revenue from software and hardware sales, no matter where it comes from, will be included in the GNP of the U.S. The production and sale of goods and services in the U.S. and other countries will be counted as their GDP.
Actress Megan is a dual citizen who lives in both Sweden and the United States. In this scenario, the Swedish and American governments will count her earningsEarningsEarnings are usually defined as the net income of the company obtained after reducing the cost of sales, operating expenses, interest, and taxes from all the sales revenue for a specific time period. In the case of an individual, it comprises wages or salaries or other payments. in their respective economies. Thus, regardless of location, gross national product aids in calculating gross national income and its citizen’s contribution to the economyEconomyAn economy comprises individuals, commercial entities, and the government involved in the production, distribution, exchange, and consumption of products and services in a society..
Why GNP Is Important?
The gross national product (GNP) measures a country’s income from both domestic and international operations. The government uses it as an economic indicator to:
- Analyze the production and provision of goods and services by people and businesses, both inside and outside the country.
- Understand the condition of manufacturing, employment, savings and investments, exports and imports (balance of payments), etc., and make laws.
- Assess the rate of inflation and poverty in a nation and develop policies accordingly.
- Accurately measure the gross income of its citizens and corporations in foreign countries.
- Get valuable information and data about other economic variables that GDP usually does not consider.
- Estimate the yearly economic expansion or contraction based on the ownership of the economic activity.
Frequently Asked Questions (FAQs)
Gross national product (GNP) refers to the accumulated value of all finished goods and services offered by a citizen or a domestic firm in a year, irrespective of its location. It is a helpful economic indicator in determining the contribution of every citizen and domestic firm to the overall economy of its native country. Also, calculating GNP eliminates income or production from non-residents of a nation.
Governments use the following GNP formula to measure the total market value of goods and services produced both inside and outside the country by a resident or firm:
Y = C + I + G + NX + Z
Or, Y = GDP + Z (overseas income of domestic residents or firms – domestic income of foreign nationals or firms).
GDP is the value of finished products and services produced and delivered by domestic and foreign enterprises and individuals within a country. GNP subtracts the value of finished goods and services produced and rendered by domestic inhabitants or businesses inside and outside the country from those provided by foreign residents or enterprises within the nation.
This has been a Guide to the What is GNP (Gross National Product) and its Meaning. Here we discuss the formula to calculate GNP example with why it is important? You can learn more from the following articles –