Gross National Product and Its Differences from Gross Domestic Product
What Does Gross National Product Say About a Country?
Gross national product is the value of all goods and services made by a country's residents and businesses, regardless of production location. GNP counts the investments made by U.S. residents and businesses, both inside and outside the country. In other words, it computes the value of all products manufactured by domestic companies, regardless of where they are made.
GNP doesn't count any income earned in the United States by foreign residents or businesses. It also excludes products manufactured in the United States by overseas firms.
The formula to calculate the components of GNP is Y = C + I + G + X + Z.
That stands for GNP = Consumption + Investment + Government + X (net exports, or imports minus exports) + Z (net income earned by domestic residents from overseas investments - net income earned by foreign residents from domestic investments.)
GNP Versus GDP
U.S. GNP says a lot about the financial well being of Americans and U.S.-based multi-national corporations. It says less about the health of the U.S. economy. For that, you should use gross domestic product. It measures production inside of a country, no matter who makes it.
GNP is the same as GDP + net income earned by domestic residents from overseas investments - net income earned by foreign residents from domestic investments. That means GNP is a more accurate measure of a country's income than its production.
Examples of GNP versus 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. 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 stimulate economic growth in the United States because those manufacturing jobs were outsourced. It's Korean workers who will boost their country's economy and GDP 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 would be unaffected by the drought. But 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. But 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. That increases sales and subsequently production.
GNP per Capita
GNP per capita is a measurement of GNP divided by the number of people in the country. That 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. So that GNI can be more fairly compared between nations with widely different populations and standards of living, the World Bank uses GNI per capita.
The World Bank also uses the purchasing power parity method. PPP excludes the impact of exchange rates. Instead, it values each nation's output by what it would be worth in the United States.
The CIA Factbook doesn't 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 a significant factor in boosting economic growth and would be counted in GNP. But it isn't counted in GDP, and so the economic power of these economies may be understated.