Gross National Income

What It Says About a Country

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Image by Alex Dos Diaz © The Balance 2020

Gross national income is a measurement of a country's income. It includes all the income earned by a country's residents and businesses, including any income earned abroad. Income is defined as all employee compensation plus investment profits. It includes earnings from foreign sources.

GNI also includes any product taxes not already counted, minus subsidies. It does not count income earned by foreigners located in the country. It also does not include the shadow or black economy.

Difference Between GNI and GDP

GNI measures all income of a country's residents and businesses, regardless of where it's produced.

Gross domestic product measures the income of anyone within a country's boundaries. It doesn't matter who produces it. It includes anything earned by foreigners, including foreign businesses, while they are in the country. GDP measures production while GNI measures income.

GNI equals GDP plus wages, salaries, and property income of the country's residents earned abroad. It also includes net taxes and subsidies receivable from abroad, according to the Organization for Economic Cooperation and Development.

Difference Between GNI and GNP

GNI measures income earned, including income from investments that flows back into the country. 

Gross national product includes the earnings from all assets owned by residents. It even includes earnings that don't flow back into the country. It then omits the earnings of all foreigners living in the country, even if they spend it within the country. GNP only reports how much is earned by the country's citizens and businesses, no matter where it is spent in the world. 

Comparison Chart

The chart below compares what is and isn't included in GDP, GNI, and GNP.

Income Earned by: GDP GNI GNP
Residents in Country C+I+G+X C+I+G+X C+I+G+X
Foreigners in Country Includes Includes If Spent in Country Excludes All
Residents Out of Country Excludes Includes If Remitted Back Includes All
Foreigners Out of Country Excludes Excludes Excludes

Formulas

To put things in a simpler form, here are the formulas to calculate GDP, GNI, and GDP.

The components of GDP are personal consumption (C) + business investment (I) + government spending (G) + [exports - imports (X)]: 

GDP = C + I + G + X.

GNI is calculated from GDP:

GNI = GDP + [(income from citizens and businesses earned abroad) – (income remitted by foreigners living in the country back to their home countries)].

GNP is calculated from GDP:

GNP = GDP + [(income earned on all foreign assets – income earned by foreigners in the country)].

GNI is calculated from GNP:

GNI = GNP + [(income spent by foreigners within the country) – (foreign income not remitted by citizens)].

Why These Differences Are Important

In many emerging markets, such as Mexico, residents move to other countries where they can earn a better living. They send lots of money back to their families in their home county. This income is enough to drive economic growth. It's counted in GNI and GNP though not in GDP. As a result, comparisons of GDP by country will understate the size of these countries' economies. 

GNI by Country

The World Bank provides GNI data for all countries. To compare incomes among nations, it removes the effects of currency exchange rates. It converts everything to the U.S. dollar using purchasing power parity

The problem with the PPP method, though, is that it converts all goods and services in a country to what it would cost in the United States. The method works well for products like McDonald's hamburgers that are sold across the world. But it does a poor job of estimating the value of goods not sold in America. A yak cart is one such example. Are their values the same as automobiles, the predominant form of U.S. transportation, or to similar animals such as cattle?

Measuring GDP per capita may be the best way to compare GDP among countries. This method calls for dividing a country’s economic output by its population. Nations with much higher populations may not fare as well as those with fewer people.

GNI per Capita

GNI per capita is a measurement of income divided by the number of people in the country. It compares the GNI of countries with different population sizes and standards of living

The World Bank provides this data as well. In this case, it converts income to U.S. dollars using the official exchange rate. It then applies the Atlas conversion method to smooth out exchange rate volatility. It then divides the GNI by the country's population to get GNI per capita. This is done using the country's data from the middle of the year to eliminate seasonal fluctuations. 

The Bottom Line

Although GNI and GNP both measure economic wealth, they differ in what they include in calculations. GNI focuses on income while GNP calculates output. GNI includes income coming in from foreign sources, whether these are from the nation’s citizens or not.

The World Bank compares GNI per capita among countries to size up their standards of living.

In Depth: Real GDP Versus Nominal GDP | GDP Versus GDP Growth Rate | Ideal Growth Rate

Article Sources

  1. Bureau of Economic Analysis. "Gross National Income (GNI)." Accessed March 4, 2020.

  2. United Nations International Children's Emergency Fund. "Economic Indicators." Accessed March 4, 2020.

  3. Organization for Economic Co-Operation and Development. “Gross National Income.” Accessed March 4, 2020.

  4. Bureau of Economic Analysis. "Gross National Product (GNP)." Accessed March 4, 2020.

  5. Bureau of Economic Analysis. "What is GDP?," Page 2. Accessed March 4, 2020.

  6. Business Case Analysis. "Determining GDP, GNI, and GNP." Accessed March 4, 2020.

  7. Central Intelligence Agency. “The World Factbook - References: Definitions and Notes,” Select 'G'. Accessed March 4, 2020.

  8. The World Bank. "Why Use GNI Per Capita to Classify Economies Into Income Groupings?" Accessed March 4, 2020.

  9. The World Bank. “GNI, PPP (Current International $),” Accessed March 4, 2020.

  10. The World Bank. “GNI per Capita, Atlas Method (Current US$).” Accessed March 4, 2020.

  11. The World Bank. “The World Bank Atlas Method – Detailed Methodology.” Accessed March 4, 2020.