Gross National Product (GNP)

Definition

Gross National Product (GNP) measures the total market value of all goods and services produced by the residents (nationals) of a country, regardless of whether production occurs domestically or abroad. It excludes income earned within the country by foreign residents.

How GNP Is Calculated

GNP can be derived from GDP by adjusting for cross‑border income flows:

GNP = GDP + Net income earned by residents from abroad − Income earned by foreign residents domestically

Alternatively, using expenditure components:
GNP = C + I + G + (X − M) + Net factor income from abroad

Where:
* C = personal consumption expenditures
I = private domestic investment
G = government spending
X − M = net exports (exports minus imports)
Net factor income from abroad = income residents earn overseas minus income paid to nonresidents

Intermediate goods are excluded to avoid double‑counting; only final goods and services are counted.

GNP vs. GDP

The key distinction is nationality versus location:
* GDP (Gross Domestic Product) measures output produced within a country’s borders, regardless of who produces it.
* GNP measures output attributable to a country’s residents, wherever the production takes place.

Consequences:
* If domestic residents earn more abroad than foreign residents earn domestically, GNP > GDP.
* If foreign residents earn more domestically than domestic residents earn abroad, GNP < GDP.

Large differences between GNP and GDP signal significant cross‑border economic activity, such as multinational production, international investments, or large remittance flows.

Why GNP Matters

• Tracks national income tied to ownership and residency rather than location.
• Reveals how much of a country’s economic output benefits its residents, including income from foreign operations.
• Helps assess the degree of integration into the global economy and the impact of international investment and labor mobility on national welfare.

When Economists Use GNP

While GDP is the more commonly used indicator for domestic economic activity and policy analysis, GNP remains useful for:
* Evaluating national income of residents, especially in economies with substantial overseas operations or large numbers of citizens working abroad.
* Comparing the economic benefits flowing to nationals versus income retained by foreign entities operating domestically.

Bottom Line

GNP follows the economic activity of a country’s residents wherever they produce, while GDP follows activity within a country’s borders. Both metrics offer complementary perspectives: GDP for location‑based economic activity and policy; GNP for nationality‑based income and the international reach of a country’s residents and firms.