Gross Domestic Product (GDP) and Gross National Product (GNP) both try to measure the market value of all goods and services produced for final sale in an economy. The difference is how each term interprets what constitutes the economy.
GDP refers to and measures the domestic levels of production in a country. It represents the monetary value of all goods and services produced within a nation’s geographic borders over a specified period of time. GDP is often used to indicate the health of a nation’s economy. Investors use this figure to make decisions about investment in a particular nation, while governments use it for drafting policies. (See The GDP And Its Importance.)
GNP measures the levels of production of all the citizens or corporations from a particular country working or producing in any country. For example, the United States’ GNP measures and includes the production levels of any American or American-owned entity, regardless of where in the world the actual production process is taking place, and defines the economy in terms of the private or corporate citizens’ output. Therefore, it includes the compensation and investment income received by nationals working or investing abroad. GNP is less commonly referred to than GDP, but is best described as the measure of national output.
Examples of GNP and GDP
Depending on circumstances, the GNP of a country can be either higher or lower than its GDP. It depends on the ratio of domestic to foreign manufacturers in a given country. For example, China’s GDP is $300 billion greater than its GNP, according to public data platform Knoema, due to the large number of foreign companies manufacturing in the country, whereas the GNP of the U.S. is $250 billion greater than its GDP, because of the mass amounts of production that take place outside of the country’s borders.
Though both calculations attempt to measure the same thing, generally speaking, GDP is the more commonly used method of measuring a country’s economic success in the world. But GNP can be useful as well. It is important to reference both when trying to get an accurate description of a given country’s economic worth.
Organizations like The World Bank and the United Nations, through its Human Development Index, have replaced GNP with Gross National Income (GNI) to better measure the income of a country. While GNP and GNI are very similar in purpose and definition, the GNI is a better measure of income rather than production.