Gross national product (GNP)

economic-dictionary

The gross national product (GNP) is an indicator that shows us the quantity of final goods and services generated with the factors of production (land, labor and capital) of a country and a given period of time, although these factors are outside of said country.

The difference, therefore, with the gross domestic product (GDP) is that the latter takes into account the production generated within the same country, regardless of whether domestic or foreign production factors have been used.

National income Difference between GDP, PIN, PNN and GNP

GNP variation rate

To calculate the rate of change in GNP we will use the following formula:

GNP variation rate = [(GNP year 1 / GNP year 0) - 1] x 100 =%

This formula tells us how much GNP has increased or decreased in percentage.

How is GNP calculated?

To obtain the calculation of this indicator, we have to start from the GDP formula since it also measures the wealth generated within a country with the difference that, as we have commented, it does not take into account whether these production factors are property of nationals or foreigners. This difference is the key to differentiate between the two formulas.

To calculate GNP, the income that national residents obtain abroad (RRN) must be added to GDP and the income obtained by foreign residents within the country we are analyzing (RRE) must be subtracted. It will be as follows:

GNP: GDP + NRN - ERR

Therefore, GDP will be higher than GNP in countries with a large presence of foreign capital (in these cases RRE will increase). And on the contrary in countries where investments abroad are high. In these cases, GNP will be greater than GDP, since the NRN will increase.

Furthermore, in a closed economy, GDP will coincide with GNP. This is so since there is no movement of income between nationals and foreigners. However, in an open economy the two measures will be different because part of the production generated in the country will be owned by foreigners who have invested there, and in the same way, there will be nationals who have their production factors in foreign countries .

Example of gross national product (GNP)

Imagine an American company building a T-shirt factory in Vietnam.

In this case, what this factory produces will be counted in the US GNP but not in the Vietnam GNP, since although the latter is the place of production, the company is US. On the other hand, the production of this factory will be counted within the GDP of Vietnam, but not within the GDP of the United States.

GDP variation rate Purchasing Power Parity (PPP)

Tags:  markets USA economic-dictionary 

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