GDP vs GNP: Key Differences, Formulas, and Examples Explained Simply
Understand the difference between GDP and GNP with examples. Learn how GDP and GNP are calculated, what they mean, and why they matter in economics and policymaking.
Difference Between GDP and GNP: A Simple Explanation
GDP (Gross Domestic Product) is the total monetary value of all goods and services produced within the geographic boundaries of a country in a given period, typically one year.
Includes:
- Production by foreign companies operating inside the country
- Goods and services produced within the country, regardless of ownership
📌 Formula:
GDP = C + I + G + (X – M)
Where:
- C = Private consumption
- I = Investment
- G = Government spending
- X = Exports
- M = Imports
📙 What is GNP?
GNP (Gross National Product) is the total monetary value of all goods and services produced by a country’s residents, regardless of whether the production is inside or outside the country.
✅ GNP Includes:
- Income earned by nationals abroad
- Excludes income earned by foreigners inside the country
📌 Formula:
GNP = GDP + Net income from abroad
(Net income = Income earned by citizens abroad – Income earned by foreigners in the country)
📊 Key Differences: GDP vs GNP
| Feature | (Gross Domestic Product) | (Gross National Product) |
|---|---|---|
| Definition | Value of output within the country | Value of output by nationals |
| Scope | Domestic boundaries | Global (residents only) |
| Includes | Foreign entities within the country | Citizens/entities abroad |
| Excludes | Income of nationals abroad | Income of foreign nationals domestically |
| Focus | Location-based production | Ownership-based production |
📈 Example:
Suppose an Indian company earns ₹100 crore in the US, and a US company earns ₹80 crore in India.
- India’s GDP = Total output within India, including ₹80 crore by US company
- India’s GNP = GDP – ₹80 crore + ₹100 crore = GDP + ₹20 crore net factor income from abroad
📌 Which One Is Better?
| Use GDP When… | Use GNP When… |
|---|---|
| You want to measure total domestic production | You want to measure total national income |
| Evaluating local economic activity | Evaluating citizens’ global earnings |
| Analyzing economic policies focused on local industry | Analyzing income from global investments |
FAQs
Q1: Can Gross Domestic Product be higher than Gross National Product?
Yes, if foreign companies generate more income in the country than nationals do abroad.
Q2: Which is used more globally?
Gross Domestic Productis the standard measure for economic size and health.
Q3: Why is Gross National Product less commonly used today?
Globalization has blurred ownership lines. Gross Domestic Product reflects local economic strength better.
Understanding the difference between Gross Domestic Product and Gross National Product is essential for interpreting economic indicators, making investment decisions, and understanding a country’s real income.
- Use Gross Domestic Product to measure internal productivity
- Use Gross National Product to evaluate income earned by nationals worldwide
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Last Updated on: Tuesday, June 10, 2025 2:55 pm by Admin | Published by: BUSINESS SAGA TEAM on Tuesday, June 10, 2025 2:55 pm | News Categories: Startup News
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