Gross Domestic Product (GDP) and Gross National Product (GNP) are two most frequently used economic indicators to measure the strength of economy. There are many differences between GDP and GNP. The main difference between GDP and GNP is that GDP refers to the market value of goods or services produced in a country excluding foreign production in a given period of time, normally a year. On the other hand, GNP stands for the same meaning as GDP but GNP includes the elements of foreign income by domestic citizens, wherever they are living, as well.
What is GDP?
Gross Domestic Product or simply GDP means the market value of all the goods, products, and services produced with in a county during a specific period, normally the financial year of a country. GDP is the aggregate demand in an economy. In short, GDP is the total of output of all sectors of the economy that are: agriculture, mining, etc. (primary sector); manufacturing and construction (secondary sector); and tertiary sector (services). In GDP, GDP per capita is often considered an indicator of a country’s standard of living, though it is not a measure of personal income. However, GDP doesn’t include services and products that are produced by the nation in other countries. In other words, GDP measures products only produced domestically. GDP is regarded as the most important factor in the national economy as the economic growth that is the one of the major economic objectives of any government is normally calculated as GDP. The calculated GDP figure is expressed as the GDP per capita that means the GDP per head. In that’s way the calculated GDP per capita is then compared with the different countries in order to make the comparisons of economic growth in two or more than two countries. Along with Gross National Product, National Income, and Net National Product, GDP is also a measure that can be used to calculate the size of an economy. The factors involved in the calculation of GDP are the amount of consumption, investment, government spending, exports and imports in an economy for a fixed time period (quarterly or yearly). When it comes to the total output in an economy then it means that the output of all sectors of an economy mainly primary sector (mining, agriculture, etc.), secondary sector (construction and manufacturing), and tertiary sector that is about services only. It counts important to mention here that the products and services produced by the nation or citizens of a country in other countries never becomes the part of the domestic GDP rather these become the part of the GDP of that other country only. GDP stands for only those products and services that are produced in the territories of the country. The formula of GDP is GDP = C + I + G + (X-M).
What is GNP?
Gross National Product or simply (GNP) referrers to the GDP plus any income earned by resident of a country from overseas investment, minus income earned by overseas residents with the domestic economy. In short, we can say that GNP is the production of the citizens of a country only, wherever they are living. GNP is used to measure how the nationals of a country are contributing economically. So if an American States citizen is living abroad and he earned some income there then this income will be the part of American GNP instead of GDP. In order to understand the GNP, it is important to first understand the GDP because GNP is linked with the GDP for the calculation of goods and services produced in a specific time period in an economy. Along with Gross Domestic Product, National Income, and Net National Product, GNP is also a measure that can be used to calculate the size of an economy. It involves all those factors that are used by the GDP for the measurement of national income with the addition of adding the income earned by the nation from abroad and deducting one that is earned by the foreigners from the domestic market. GNP also includes the indirect taxes and depreciation in the calculation of income but doesn’t include the services consumed in producing the manufactured products because the value of these services is included in the price of finished products. Just like GDP per capita, GNP per capita is calculated by dividing the total GNP with the total population of a country. The formula of GNP is GNP = GDP + Income Earned by Nation from Other Countries – Income Earned by Foreigners from Domestic Market.
Key Differences between GDP and GNP
- GDP is the production within the geographical confines of a nation by all residents in that country (whether citizens or non-citizens) and GNP is the production of the citizens of a country only, wherever they are living.
- GDP is calculated via three methods namely: Output Method, Income Method, and Expenditure Method. GNP is calculated via GDP plus net property income from abroad.
- GDP is used to measure the strength of a country’s domestic economy while GNP is used to measure how the national of a country are contributing economically.
- GDP focuses on the domestic production while GNP focuses on the production of nationals worldwide.
- GDP per capita is used to check the per capita income of an individual in the country.
- GDP tells more about the standard of living of people in a country as compared to the GNP.
- In narrow term, GDP is based on the geographical area of production while GNP is based on the location of ownership.
- Qualitative and quantitative factors in an economy are considered more by the GDP as compared to the GNP. These factors are often overlooked in the case of calculating GNP.
- Although GNP is one of the major measuring systems along with GDP, National Income, and Net National Product, to calculate the size of an economy but still the GDP is used as the primary measure of production in most of the countries.
- Despite the fact that GDP is used as the primary measure of production in most of the countries, GNP is still used as a mean for economic indicator because it gives the more comprehensive picture of international trade and production of an economy.
- The formula for calculating GDP per capita is dividing total GDP with the total population while the formula for the calculation of GNP is dividing the total GNP with the total population of a country.
- Just like GDP, GNP also includes the indirect taxes and depreciation in the calculation of income but doesn’t include the services consumed in producing the manufactured products because the value of these services is included in the price of finished products.
- The formula of GDP is: GDP = C + I + G + (X-M)The formula of GNP is: GNP = GDP + Income Earned by Nation from Other Countries – Income Earned by Foreigners from Domestic Market.
- GDP is mostly used as a measure of economy growth to analyze the strength of a country’s domestic economy while GNP is used to check who the country economy is doing at international level.