Difference Between GDP and GNP

Introduction

There are two utmost Economic terms named “GDP” and “GNP”. GDP stands for Gross Domestic Product whereas, GNP stands for Gross National Product. Both terms take the measurement of the size and power of an economy but are enumerated and utilized in different methods.

According to economics, Gross Domestic Product is used to enumerate the aggregate value of goods and services produced within a country’s partitions, while Gross National Product is used to enumerate the aggregate value of goods and services produced by the citizens of the country (location doesn’t matter). Fundamentally, GDP inquiries to the amount of economic pursuit within a nation’s economy, while GNP highlights the value of the economic pursuit initiated by the nation’s people.

GDP vs. GNP

There are various applications in GDP and GNP. From business to forecasting, GDP and GNP are the most significant terms. GDP (Gross Domestic Product) implies the value of goods and services manufactured within the geographical ambits of a nation in a financial year. Whereas GNP (Gross National Product) indicates the value of goods and services manufactured by the natives of a nation irrespective of the geographical boundaries in a financial year. GDP only measures domestic production whereas, GNP only measures national production. GDP accentuates the production that is procured domestically while GNP accentuates the production that is acquired by the citizens living in unalike nations. GDP calls attention to the power of the country’s economy whereas, GNP calls attention to the contribution of the residents to the buildout of the economy. The goods and services that are being manufactured outside the economy are precluded in GDP. The goods and services that are manufactured by the foreigners living in the country are precluded in GNP. GDP only takes measures domestic production whereas, GNP only measures national production. GDP accentuates the production that is procured domestically while GP accentuates the production that is acquired by the citizens living in unalike nations. GDP calls attention to the power of the country’s economy whereas, GNP calls attention to the contribution of the residents to the buildout of the economy. The goods and services that are being manufactured outside the economy are precluded in GDP. The goods and services that are manufactured by the foreigners living in the country are precluded in GNP. The country with the highest per Capita (US$) GDP is Qatar ($102,785). The country with the highest per Capita (U in GNP is Luxembourg ($45,360). The country with the lowest per Capita (US$) GDP is Malawi ($242). The country with the lowest per Capita (US$) GNP is Mozambique ($80). The formula that is used in calculating GDP is, GDP = Consumption = investment + (government expenditures) + (exports – imports). The formula that is used to calculate GNP is – GNP = GDP + NR 9Net income inflow from assets abroad or Net Income Receipts) – NP (Net payment outflow to foreign assets).

Difference Between GDP and GNP in Tabular Form

Parameter of Comparison	GDP	GNP
Interpretation	The value of goods and services manufactured within the geographical ambits of a nation in a financial year is entitled to GDP.	The value of goods and services manufactured by the natives of a nation irrespective of the geographical boundaries in a financial year is termed GNP.
Measurement criteria	It only measures domestic production.	It only measures national production.
Emphasis	It accentuates the production that is procured domestically.	It accentuates the production that is acquired by the citizens living in unalike nations.
Highlights	It calls attention to the power of the country’s economy.	It calls attention to the contribution of the residents to the buildout of the economy
Scale of Functioning	Local-scale	International scale
Precludes	The goods and services that are being manufactured outside the economy are precluded.	The goods and services that are manufactured by the foreigners living in the country are precluded.

What is GDP?

GDP, or gross domestic product, measures the aggregate economic value of all final goods and services manufactured within a country’s borders throughout a determined period. An utterance of an economy’s correlative health—growth in GDP designates a country’s economy is increasing and a diminish that it is shrinking—GDP is used by economic policymakers, in the United States, and on the other side of the world, to control the interest rates and other economic strategies.

The GDP takes hold of the purchases of recently produced goods and services for a specific period into account. In enumerating the GDP, the focal point is on the aggregate value of goods and services produced within the country’s borders, regardless of whether the value inclusion is ascribed to the residents or non-residents of the country.

Types of GDP

There are two types of GDP:

• Nominal GDP is a country’s economic production at contemporary total market value, meaning that it is often framed as much by currency inflation as it is by augmented economic production.
• Real GDP is a country’s production modified for inflation. By contrasting the year under study to a base year and keeping prices congruous across both, economists separate and then dispel inflation from the equation, providing a more precise picture of a nation’s real growth or reduction in economic production.

Calculation of GDP

There are two methods of numerating GDP. They are:

• Expenditure approach
• Income approach

Expenditure approach: The expenditure approach considers adding up all the amount consumed on goods and services throughout the period.

GDP = C + I + G + (X – M)

Where,

C = Consumption spending

I = Business investments (Capital equipment, inventories)

G = Government purchases

X = Exports

M = Imports

Income approach: Under this income method, the GDP is enumerated by adding up three components.

GDP = National income + Statistical discrepancy + Capital consumption allowance

Total National Income= addition of all wages, rent, interest, and profits Sales Taxes=excise taxes foisted by the government on the sales of goods and services Depreciation= Cost assigned to a tangible asset over its functional life Net Foreign Factor Income=Dissimilarities between the total income that a country’s natives and companies produce in foreign countries, versus the total income foreign citizens and companies produce in the domestic country.

Top 10 Countries with the Highest Gross National Product (United Nations 2020 GNI, current US$):

1. United States — $21.29 trillion
2. China — $14.62 trillion
3. Japan— $5.16 trillion
4. Germany— $3.95 trillion
5. United Kingdom— $2.72 trillion
6. France— $2.67 trillion
7. India — $2.64 trillion
8. Italy — $1.91 trillion
9. South Korea — 1.65 trillion
10. Canada— $1.63 trillion

Real GDP

The one thing that people are eager to know about an economy is whether its total output of goods and services is developing or diminishing. However, if GDP is accumulated at current, or nominal, prices, one cannot contrast two periods without making adjustments for inflation (adjusted by the percentage increase or decrease). To ascertain “real” GDP, its face value must be modified to consider price changes to permit us to see whether the value of output has ascended because more is being manufactured or easily because prices have augmented. A numerical tool called the price deflator is used to adjust GDP from the nominal value to constant values.

GDP is significant as it demonstrates information about the size of the economy and how an economy is carried out. In real GDP, the growth rate is frequently used as a measure of the general health of the economy. In wider terms, an increase in real GDP is elucidated as a sign that the economy is prospering. When real GDP is growing firmly, employment is probably to be augmenting as the companies employ more workers for their factories and people have more money in their pockets. When GDP is falling, as it did in many countries throughout the current global economic predicament, employment often decreases. In some instances, GDP may be increasing, but not fast enough to generate an adequate number of jobs for those trying to find them. But real GDP growth progresses in cycles at a snail’s pace. Economies are sometimes in periods of gradual growth or even recession. In the United States, for instance, there were six recessions of differing length and brutality between 1950 and 2011. The National Bureau of Economic Research pays a visit to the dates of U.S. business fluctuations.

What is GNP?

GNP is termed gross national product and shows the aggregate value of goods and services manufactured by the residents of a country throughout a financial year. It considers the income earned by the natives of the country present within or outside the country. It eliminates the income produced by the foreign nationals who are residing in the country.

Process of Calculating GNP

Also named Gross National Income (GNI), GNP is enumerated by adding personal depletion expenditures (embracing health care), private domestic investment, income earned by inhabitants from overseas investments, and government expenditures.

• Because it is only involved with the economic output of a country’s residents, the income earned in the domestic economy by foreign inhabitants is then deducted from this sum.
• Thus, considering GNP, production of goods can take place anywhere in the world—since the means of production is owned by an inhabitant of the country beneath study, these goods count towards GNP.
• GNP is highly interconnected to Net National Product (NNP), which enumerates the value of all completed goods and services produced by a country’s inhabitants minus the amount of capital needed to manufacture these goods such as raw materials, energy costs, and so forth.

Calculation of GNP

GNP = GDP + NR – NP

Where,

GDP = Gross domestic product

NR = Net income receipts

NP = Net outflow to foreign assets

Main differences between GDP and GNP in points

• GDP implies Gross Domestic Product, whereas GNP stands for Gross National Product.
• GDP indicates the value of goods and services manufactured within the geographical ambits of a nation in a financial year. Whereas GNP indicates the value of goods and services manufactured by the natives of a nation irrespective of the geographical boundaries in a financial year.
• The formula that is used in calculating GDP is, GDP = Consumption = investment + (government expenditures) + (exports – imports). The formula that is used to calculate GNP is – GNP = GDP + NR 9Net income inflow from assets abroad or Net Income Receipts) – NP (Net payment outflow to foreign assets).
• GDP only takes measures domestic production whereas, GNP only measures national production.
• GDP accentuates the production that is procured domestically while GP accentuates the production that is acquired by the citizens living in unalike nations.
• GDP calls attention to the power of the country’s economy whereas, GNP calls attention to the contribution of the residents to the buildout of the economy.
• The goods and services that are being manufactured outside the economy are precluded in GDP. The goods and services that are manufactured by the foreigners living in the country are precluded in GNP.
• The country with the highest per Capita (US$) GDP is Qatar ($102,785). The country with the highest per Capita (US$ in GNP is Luxembourg ($45,360).
• The country with the lowest per Capita (US$) GDP is Malawi ($242). The country with the lowest per Capita (US$) GNP is Mozambique ($80).

Conclusion

Considering Some valuable brands like Apple, which manufacture goods for sale in the worldwide economy and often set aside their benefits to places with commendatory corporate tax laws like Ireland. Since GNP appraises any production of domestic inhabitants, it encompasses these companies and their economic pursuit takes place outside the country. However, GDP only computes the Economic production of a given nation’s economy, so it does not examine this international pursuit, nor the money remitted to foreign economies. Economists and investors are more aware of the practice with GDP than with GNP as it comes up with a more precise picture of a nation’s total economic pursuit regardless of country-of-origin, and thus provides a superior measurement of an economy’s all-inclusive health. That said, GNP is still dominant, principally when contrasting it alongside GDP from the alike year.