GNP and GDP both reflect the national output and income of an economy. The main difference is that GNP (Gross National Product) takes into account net income receipts from abroad.
- GDP (Gross Domestic Product) is a measure of national income / national output and national expenditure produce in a particular country.
- GNP = GDP + Net property income from abroad. This net income from abroad includes, dividends , interest and profit.
GNP includes the value of all goods and services produced by nationals whether in the country or not.
Example of GNP
If a Japanese multinational produces cars in the UK. This production will be counted towards UK GDP. However, if the Japanese firm sends £50m in profits back to shareholders in Japan. Then this outflow of profit is subtracted from GNP. UK nationals don’t benefit from this profit.
If a UK firms makes profit from insurance companies located abroad, then if this profit is sent back to UK nationals, then this net income from oversees assets will be added to GNP.
Note if a Japanese firm invests in the UK, it will still lead to higher GNP, as some national workers will see higher wages. However, the increase in GNP will not be as great as GDP.
- If a county has similar inflows and outflows of income from assets, then GNP and GDP will be very similar.
- However, if a country has many multinationals who repatriate income from local production, then GNP will be lower than GDP.
For example, Luxembourg has a GDP of $87,400 but a GNP of only $45,360.
A country like Ireland has received significant foreign investment. Therefore for Ireland, there is a net outflow of income from the profits of these multinationals. Therefore, Irish GNP is lower than GDP.
GNI (Gross national Income) is based on a similar principle to GNP. The World Bank define GNI as
GNI is the sum of value added by all resident producers plus any product taxes (minus subsidies) not included in the valuation of output plus net receipts of primary income (compensation of employees and property income) from abroad. (World Bank)
The World Bank now use GNI rather than GNP.
from: pdf ONS (1995)
This shows a small net income from abroad so the GNI £715,028m is greater than GDP (£713,980)