Difference between GDP and GNP

May 27, 2017 by Editorial Team

We often see the terms “GDP” and “GNP” on the news or on the paper, but many of us still do not know what they mean or what their difference is. Sure, they were taught in school, but if your field of work is not economics, it can be difficult to remember what they mean and how they are different. If you are one of those who needs a quick refresher, this article is for you.

Descriptions

GDP vs GNP

GDP or “gross domestic product” is the total market value of all the goods and services made within the borders of a particular country, including those that are produced by foreign companies. For instance, the value of the products made by a Japanese company located in New York will be included in the calculation of the U.S. GDP.

GDP can be calculated annually or quarterly by using the following formula:

GDP = C (consumer spending such as food, clothing, and other services) + G (government spending such as roads, schools, and other infrastructure) + I (investments such as homes and businesses) + NX (net exports which is calculating by adding exports and subtracting imports)

In a nutshell, GDP can be measured using three different methods:

1. Income measure – the total income of the people in terms of wages and profits

2. Output measure – the total value of the products and services from different government sectors such as energy, agriculture, construction, manufacturing, etc.

3. Expenditure measure – the total value of the products and services purchased by private individuals and the government

GDP is the key measure used by the Bureau of Economic Analysis (BEA) in the U.S. and virtually all other countries to determine the country’s economic activity and status.

On the other hand, GNP or “gross national product” is the estimated total value of all the products and services produced by a country’s citizens, no matter where they are. This means that the money earned by a U.S. resident who works in Japan is included when calculating the GNP of the United States.

GNP is calculated using the following formula:

GNP = GDP (consumption + investment + government + net exports)+ net income of its citizens from overseas – investment income from foreign businesses in the country

GDP vs GNP

What, then, is the difference between GDP and GNP?

Both GDP and GNP measure the economic activity of a country, but they have different interpretations of what factors make up the economy.

GDP is the total market value of all the goods and services produced in a particular country, including those that are produced by foreign companies operating within its borders. Its formula is GDP = C (consumer spending such as food, clothing, and other services) + G (government spending such as roads, schools, and other infrastructure) + I (investments such as homes and businesses) + NX (net exports). Conversely, GNP is the total value of all the products and services produced by a country’s citizens, including those who are abroad. It can be calculated by using the following formula: GNP = GDP (consumption + investment + government + net exports) + net income of its citizens from overseas – investment income from foreign businesses in the country.

Moreover, the U.S. and several other countries use GDP to determine their economic activities.

Comparison Chart

GDPGNP
“Gross domestic product”; the estimated market value of all goods and services produced in a particular country, including those that are produced by foreign companies operating within its borders“Gross national product”; the value of all products and services produced by a country’s citizens, including those who are working or operating overseas
Formula: GDP = C (consumer spending) + G (government spending) + I (investments) + NX (net exports)Formula: GNP = GDP (consumption + investment + government + net exports) + net income of its citizens from overseas – investment income from foreign businesses in the country
Used by the U.S. and several other countries to determine the economic activityMeasures the economic activity but not as commonly used as the GDP