GDP vs. GNP

Difference Between GDP and GNP

If you look at economic news regularly, you must have come across words such as GDP and GNP. These are measures of economic activity in any country. GDP is gross domestic product and GDP is the Gross National Product. They both appear to be similar, correct? No. Even if they were, they would not have existed together. People get confused between GDP and GNP, and this article will explain the differences between the two to a clearer understanding.

GDP is defined as the total value of all goods and services produced in a given period in a country which is usually taken one calendar year. It is calculated in the following way.

GDP = consumption+ investment+ government spending+ (exports- imports).

GNP is the other gross national product which is a figure obtained by adding all the income produced by nationals of the country is in or outside the country’s GDP.

Thus the major difference is that while the GDP reflects the income generated in a country, GNP considers the income produced by nationals, no matter they are in the country or living outside the country. The two factors of location and ownership are important to the understanding of the GDP and GNP. If we speak of the United States, where production occurs in the United States, regardless of ownership, it is included in GDP. On the other hand, GNP computes economic output based on the property. That’s why it takes into account the production produced by U.S. companies doing work outside the United States.

Let us understand the difference by taking examples. Honda is a Japanese company that has propelled a huge plant in Ohio. The production of this plant is taken into account by calculating the GDP of the United States, but when it comes to GDP which is based on the concept of ownership, production is not taken into account. Conversely Ford is an American company with a plant in Mexico. As GDP is based on the property, its production is included in the GNP, but by calculating the GDP, the Mexican plant output is ignored.

Hope this article helps in removing the confusion.

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