Gross National Income

What Does It Say About a Country?

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Definition: Gross National Income (GNI) is a measurement of a country's income. It includes all the income earned by a country's residents and businesses, even if it's made abroad. Income is defined as all employee compensation and investment income, including those from foreign sources. It includes product taxes (minus subsidies) not already counted. It does not count income earned by foreigners located in the country.

 

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 (GDP) measures the income of anyone within a country's boundaries, regardless of 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.

The components of GDP are personal consumption (C) + business investment (I) + government spending (G)+ exports - imports (X). GNI = GDP + income from citizens and businesses earned abroad - income earned by foreigners living in the country paid back to their native land.

Difference Between GNI and GNP

GNI measures income earned, including that from investments, that flows back into the country. GNP (Gross National Product) includes the earnings from all assets owned by residents, even if it doesn't flow back into the country.

Similarly, it 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. The formula is GNP = GDP + income earned on all foreign assets - income of foreigners living in the country.

(Source: Building the Business Case, Solutions Matrix)

Income Earned by:GDPGNIGNP
Residents in CountryC+I+G+X C+I+G+XC+I+G+X
Foreigners in CountryIncludesIncludes If Spent in Country Excludes All
Residents Out of CountryExcludesIncludes If Remitted BackIncludes All
Foreigners Out of CountryExcludesExcludesExcludes

 

Why Are These Differences 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 at home. That income large enough to drive economic growth. It's counted in GNI and GNP. However, it isn't counted in GDP. As a result, the economic power of these economies is understated. (Source: CIA World Factbook, Definitions and Notes: GNP

GNI by Country

The World Bank provides GNI data for all countries. To compare incomes between countries, it removes the effects of currency exchange rates. It converts everything to the U.S. dollar using Purchasing Power Parity (PPP). That converts all goods and services in a country to what it would cost in the United States. That method works well for McDonald's hamburgers, which is sold everywhere. It's a little harder to estimate the value of things not sold in America, such as yak carts.

 (Source: GNI, PPP Method, World Bank.)

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. It uses the country's as of the middle of the year to eliminate seasonal fluctuations.

(Source: GNI per Capita, World Bank.) 

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