Gross National Product (GNP)

Gross national product (GNP) serves as a fundamental metric in measuring the economic performance of a nation. Understanding GNP, its calculation, and its implications are crucial for policymakers, economists, and investors alike.

What is gross national product (GNP)

Gross national product’s meaning refers to the total market value of all final goods and services produced by a country's residents regardless of the place where the production of goods or supply of services took place. GNP is an economic metric that measures the total value within a specific time frame, typically one year.

GNP also considers the investments made by the residents of the country and businesses within or outside the country. Furthermore, it also takes into account the total value of products produced by industries that have a domestic origin.

GNP excludes the income generated by foreign nationals in the country or the value of products manufactured by a foreign company using the country’s manufacturing units.

Importance of GNP

Gross national product is one of the most important economic indicators for grasping a country's overall economic condition. If a country's GNP is higher than last year, it indicates that the country is performing better economically.

GNP provides vital information about manufacturing, investments, production outputs, employment, etc., for a specific period, providing crucial data to a country’s government about the economy. The government and its policymakers can use this data to understand the current economic landscape and make policies and laws for further development.

Unlike GDP, gross national product calculates the earnings of a country’s residents irrespective of the location of production, which makes GNP a better economic indicator than GDP. This is because Indian citizens can have earnings from both domestic and international sources, and GNP considers both incomes. Hence, in most cases, GNP is higher than GDP and provides a broader view of India’s economic performance.

GNP is also important for analysing the balance of payments, which is the difference between India’s total exports and imports. A balance of surplus means that India’s exports were higher than its imports, while a deficit means that the imports were higher than the exports.

How is GNP calculated?

GNP can be calculated using various approaches, including the expenditure approach, income approach, and production approach. However, the most commonly used method is the expenditure approach, which sums up all expenditures on final goods and services within a specific time period.

In the Indian economy, GNP is calculated by adding the domestic production by Indian residents and the net factor income from abroad. Net factor income from abroad includes income earned by Indian residents from their investments and labour abroad, minus similar payments made to foreigners within the country's borders.

Mathematically, GNP can be expressed as follows:

GNP = GDP + Net factor income from abroad

Where: GDP = Gross domestic product

Net factor income from abroad = (Income earned by Indian residents from abroad) - (Income earned by foreigners in India)

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What is the difference between GDP and GNP?

While GNP and Gross domestic product (GDP) are both essential indicators of a nation's economic performance, they differ in their scope. Here is a comparison between Gross domestic product (GDP) and Gross national product (GNP):

What is an example of gross national product

For a better understanding of what is GNP, consider the following example:

A country's gross national product is higher than its gross domestic product. Since gross national product also includes earnings from foreign sources, it means that the country’s residents, corporations, and businesses have earned more overall.

This also means that these entities have contributed to net positive inflows to the country through their overseas operations. A higher gross national product signals that the country is developing and increasing its international trade operations, business earnings, or production.

​Gross National Income (GNI)

Gross national income and gross national product are closely related economic indicators that measure the economic performance of a country, but they have slight differences in their definitions.

Gross national income measures the total income received by a country’s residents, corporations, and businesses from domestic and international trade. Big institutions like the World Bank use GNI to understand a country's economic performance. GNI is more focused on the total income received by residents, while GNP is focused on the total market value of goods and services produced by residents. Although GNI and GNP are both closely related and similar, GNI is considered a better economic metric of income than GNP.

Conclusion

In conclusion, Gross national product (GNP) serves as a vital indicator of a nation's economic performance, encompassing both domestic production and income earned by residents from abroad. Understanding GNP provides valuable insights into the country's economic contributions globally. By comprehending the nuances of GNP calculation and its implications, policymakers and economists can make informed decisions to foster sustainable economic growth and development.