What Is the Gross National Product?

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Jeeps manufactured in the U.S. by foreign owner Fiat are not included in GNP. Photo: Bill Pugliano/Getty Images

Definition: Gross National Product (GNP) is a measurement of the economic power of a country. It measures the same things as Gross Domestic Product (GDP) with two important differences. These differences mean that GNP is a more accurate measure of a country's income than its production.

For example, U.S. GNP includes all income earned by American residents and businesses, regardless of where it's made.

Specifically, GNP counts the investments made by U.S. residents and businesses, both inside and outside the country. In addition, it includes the value of all products manufactured by domestic businesses, regardless of where they are made.

On the other hand, GNP doesn't count any income earned in the United States by foreign residents or businesses. Therefore, it doesn't include investments made by overseas residents. It also excludes products manufactured in the United States by overseas businesses. For these reasons, U.S. GNP tells you more about the financial well-being of Americans, and U.S.-based multi-national corporations, than it does about the health of the U.S. economy.

Examples of GNP vs GDP

For example, the output of a Toyota plant in Kentucky isn't included in GNP, although it's counted in GDP. Why? The revenue from the sales of Toyota cars and trucks goes to Japan, even though the products are made and sold in the United States.

However, it is included in GDP, because it adds to the health of the U.S. economy. That's because this plant creates jobs for Kentucky residents, who use their wages to buy local goods and services.

Similarly, the shoes made in a Nike plant in Korea will be counted in U.S. GNP, but not GDP. That's because the profits from those shoes will boost Nike's earnings and stock prices, contributing to higher national income.

It doesn't boost economic growth in the U.S. because those manufacturing jobs were outsourced. Now it's Korean workers who will boost their country's economy by buying local goods and services.

These examples show why GNP is not as commonly used as GDP as a measure of a country's economy. It gives a slightly inaccurate picture of how domestic resources are used. To give another example, if there were a severe drought in the United States, GNP would be higher than GDP. That's because the foreign holdings of U.S. residents (included in GNP, but not in GDP) would be unaffected by the drought. However, the U.S. investments of foreign workers would be affected.

GNP is also affected by changes in a country's currency exchange rates. If the dollar weakens, then the foreign holdings of U.S. residents become worth more, boosting GNP. However, that may not accurately reflect the state of the U.S. economy. (On a side note, a weaker dollar can eventually boost GDP. That's because it makes exports cheaper, which can boost sales and subsequently production.)

GNP per Capita

GNP per capita is a measurement of GNP divided by the number of people in the country. This makes it possible to compare the GNP of countries with different population sizes.

GNP by Country

Where can you find the world's GNP by country? The World Bank has replaced GNP with Gross National Income, or GNI. So that GNI can be more fairly compared between countries with widely different populations and standards of living, the World Bank uses GNI per capita. It also uses the Purchasing Power Parity (PPP) method. PPP excludes the impact of exchange rates by valuing each nation's output by what it would cost in the United States. (Source: World Bank, GNI by Country)

The most commonly-used resource to compare countries' economic performance, the CIA Factbook, doesn't even measure GNP.

It only uses GDP. The Factbook notes that in many emerging markets, such as Mexico, money made by residents overseas are sent back to their country. This income can be an important factor in boosting economic growth, and would be counted in GNP. However, it isn't counted in GDP, and so the economic power of these economies may be understated. (Source: CIA World Factbook, Definitions and Notes: GNP

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