Gross National Income

Updated on January 29, 2024
Article byKhalid Ahmed
Reviewed byDheeraj Vaidya, CFA, FRM

Gross National Income (GNI) Definition

Gross National Income (GNI) refers to the sum of all state output produced by the nation’s domestic residents and foreign residents, including its total inward remittances, excluding the outward remittances. It tracks and represents the total wealth of a country annually. Instead of output, it calculates the income.

Gross National Income (GNI)

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GNI is the best tool to determine equitable and fair income distribution amongst a country’s population. Therefore, it helps to measure the standard of living of the population. In addition, economists or policymakers use GNI to calculate the net value of products produced in a nation’s economy during a financial year.

Key Takeaways

  • Gross national income definition refers to the total of all the income generated by the local and expatriate individuals and local and overseas businesses minus the outward foreign remittances by the foreigners staying within a country.
  • GNI aids in formulating appropriate economic policies to augment, improve, and grow a country’s economy.
  • It is calculated by adding GDP to the inward remittances by businesses and individuals minus outward remittances by the foreigners residing in the country. So, GNI = GDP = (EXFS – IMFS)
  • GNI per capita helps measure the standard of living of the population in a country.

GNI Explained

The gross national income definition best refers to the total domestic output (GDP) plus inward remittances sent by the expatriates minus the total income generated by the foreign residents living in a nation. As a result, it measures the total income of a country. GNI covers all the taxes on a product not taken into account earlier, excluding its subsidies. It accounts for foreign direct investments and foreign aid or development aids too. However, it does not take into consideration the black-market economy. 

GNI has replaced the previous gross domestic product (GDP). As a result, some countries consider it more accurate.

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Gross National Income Uses

The World Bank uses GNI to differentiate countries based on purchasing power parity and per capita income. The federal reserve of the United States of America tracks the data of GNI quarterly. The European Union considers it to measure the contribution of its member nations. Therefore, it is convenient to use it to categorize world economies as developed, developing, or third-world economies.

Governments across the countries need to know the correct information about their economies to measure their performance, assess their growth and derailment, the situation of employment, and the category of their country in the world bank’s list. The government uses GNI to do all this as it gives the best idea about implementing the economic policies and modifying them if they are not good. Moreover, the economists of respective countries can also track and analyze their countries’ income using GNI.

Based on the data obtained from GNI, policymakers can create, recommend and implement fiscal policies, which can lead to economic growth. The fiscal policies that GNI helps to create are economic stimulus packages to industries by the government, new projects, and lowering or increasing taxes by the government.

GNI Formula

Here is a formula for calculating the Gross Domestic Product (GDP). GDP is the final value of all goods and services within a country for a specific period. The gross national income formula uses the calculation of GDP.

Gross Domestic Product (GDP) = Personal Consumption + Investment in business + Government Spending + (Exports-Imports)

Or GDP = C + I + G + NX

Where C = Personal Consumption

  • I = Investment in Business
  • G = Government Spending
  • NX = Exports-Imports

Moreover, GNI Formula = GDP + (inward remittances by businesses and individuals – outward remittance by the foreigners residing in the country.)

Gross National Income (GNI) Formula

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Source: Gross National Income (wallstreetmojo.com)

Or GNI = GDP = (EXFS – IMFS)

Where GDP = Gross Domestic Product

  • EXFS = Money flowing from foreign countries
  • IMFS = Money flowing from foreign countries

It can also be written as GNI = GDP + (C- D)

  • C = Inward remittances by businesses and individuals
  • D = Outward remittance by the foreigners residing in the country

Hence, the formula of GNI can be stated as the sum of gross domestic product and the difference between inward and outward remittance.

Gross National Income Per Capita

GNI per capita is found by dividing the GNI of a country by the total population of a country. Therefore, the GNI per capita is the best for knowing the standards of living of a country. For example, higher GNI per capita means high rates of literacy, lower rate of infant mortality, and access to hygienic and pure water for the population. World bank converts the data of GNI into dollars to balance the fluctuations of the global -exchange rate.

Examples

GNI is an important concept that governments use to prepare appropriate economic policies. Hence, it is imperative to understand it through gross national income examples, as shown below.

Example #1

Let us take the example of Ireland to understand the concept of GNI better. In 2017, Ireland’s GDP became extremely confusing and distorted. The distortion was so much that it did not comply with base erosion and profit shifting (BEPS), which comes under the USA’s planning tool for multinationals. As a result, the central bank of Ireland then changed the Irish GDP with that of modified metrics of modified GNI. After implementing GNI into the Irish economy, the GDP of Ireland was measured as 162% of the modified GNI of Ireland.

Example #2

The measurement of GNI is usually done along with the per capita data for a country. For instance, the GNI per capita for the USA in 2021 was $64210. The gross national income per capita saw an overwhelming increase of 11.78% from 1978 to 2020. This data was compiled and presented in the section of national accounts data of the world bank and OECD data files of national accounts.

Gross National Income vs Gross Domestic Product

GNI measures the total income earned by the residents and businesses of a particular country regardless of where they locate. It is similar to Gross National Product. GNI equals GDP plus net factor income from abroad (NFIA). In contrast, GDP is the total market value of all final goods (goods for sale rather than intermediate goods) that are services within the country. Both are quantitative concepts, and their volume indicates the internal strength of the economy.

Frequently Asked Questions (FAQs)

What is real gross national income?

Real gross national income is the total of the gross domestic product plus net receipts from abroad (compensation of employees), property income, and net taxes minus subsidies.

What are the limitations of gross national income?

GNI doesn’t calculate or reflect inequalities in the economy. It doesn’t measure qualitative changes. So, it does not reflect the quality of life of the people in an economy. It is underestimated in the lower-income counties with informal economic activities. It does not measure the value of qualitative leisure.

What does gross national income per capita mean?

The GNI per capita income is the total valuation of a nation’s closing output related to products and services in a financial year which is then divided by the nation’s population. Moreover, it represents a country’s average income of its population in a year.

How to calculate gross national disposable income?

Gross national disposable income (GNDI) measures the income available to the nation for final consumption and savings. GNDI is derived from GNI by adding all current transfers. Its formula is: GNDI = GNI – current money transfers of outward remittance (OR) + total inward remittances to the country (IR).
Therefore, GNDI= GNI – OR + IR.

This has been a guide to Gross National Income (GNI) and its definition. We explain the formula of GNI, per capita GNI, examples, and its uses. You may learn more from the following articles –