What is Gross National Product : Formula & Examples

Key Takeaways
 

• GNP counts the income of residents. It includes all money earned by a country’s citizens.
   
• Money earned by foreigners within the country is not part of GNP.
   
• Helps understand how much income citizens of a country are generating overall.

Gross National Product (GNP) is the total value of all goods and services produced by a country’s residents and businesses, no matter where in the world they operate. It includes income earned abroad by citizens or companies but excludes income earned within the country by foreigners.

Example:

Imagine an Indian company owns a factory in Dubai, and a German firm runs a plant in India. In this case, India’s GNP includes the Dubai
factory’s earnings but not the income from the German-owned plant.

Gross National Product (GNP) includes all income earned by a country’s residents, whether earned domestically or abroad, but excludes income earned by foreign residents within the country. The table below shows how different sources of income are counted in India’s GNP.
 

India’s GNP reflects income from all Indian-owned assets worldwide, while excluding income generated by foreign-owned assets within the country.

India’s GNP = ₹500 + ₹300 = ₹800 crore.

Once you understand this core idea, it becomes easier to explore how GNP compares to GDP and why it matters in economic planning.

Read More – What Is Gross Domestic Product, And How It's Calculated

Why Is GNP Important?

Economists value GNP because it gives a clearer picture of a country’s real income. They use it to understand and solve key problems like poverty, inflation, and economic imbalance.

Unlike GDP, GNP looks at income earned by a country’s people, no matter where they live or work. This makes it more reliable for measuring the actual wealth of a nation.

GNP also helps experts analyse a country’s Balance of Payments (BoP), which shows the money flowing in and out. In many regions, such as the European Union, economists prefer to use Gross National Income (GNI), which is closely linked to GNP.

Limitations of GNP 

While GNP helps measure a nation’s total income, it has several drawbacks that limit how accurately it reflects economic health.
 

Because of these limitations, economists often use GNP alongside other indicators like GDP and GNI for a more complete picture of a country's economy.

How to Calculate Gross National Product (GNP)?

Gross National Product (GNP) shows the total income earned by a country’s people and businesses, no matter where in the world they are. It tells us how much value they create through goods and services. Calculating GNP helps us understand the health of a country’s economy.

We usually use this formula:

GNP = C + I + G + X + Z

Where:

• C = What people spend on goods and services (Consumption)
   
• I = What businesses invest (Investment)
   
• G = What the government spends (Government Expenditure)
   
• X = Exports minus Imports (Net Exports)
   
• Z = Income from abroad minus income paid to foreigners (Net Income from Overseas)

Another way to write the same thing is:

GNP = GDP + Net income from abroad – Income paid to foreigners

This means we take the total value of everything produced inside the country (GDP) and add the money earned from outside the country by citizens or businesses.

GNP counts everything we make and sell, like food, machines, and clothes. It also includes services like teaching, transport, and banking. Even taxes and depreciation (loss in value over time) are part of it.

However:

• We adjust for inflation to make year-on-year comparisons fair.
   
• We use GNP per person (per capita) to compare countries.
   
• If someone holds dual citizenship, both countries might count their earnings, which causes double-counting.

So, GNP gives us a big picture of how much wealth a country’s people generate, both at home and abroad.

Understanding the Difference Between GNP and GDP

Gross National Product (GNP) and Gross Domestic Product (GDP) both help measure how much value a country creates through goods and services. However, they focus on different sources of this value. Let’s break it down simply.
 

While GDP reflects the strength of a country’s internal economy, GNP gives a broader view of how its citizens and businesses perform globally, and both are essential for understanding a nation's true economic position.

Also Read - India’s Record Forex Reserves | RBI’s Cushion Amid US Trade Tensions

What Is Gross National Income (GNI) and Why Does It Matter?

Governments and global organisations often use Gross National Income (GNI) to measure a country's economic strength. Instead of focusing only on production, GNI looks at how much income the residents of a country receive, both from inside the country and from abroad.

Here’s what GNI includes:

• GDP (Gross Domestic Product)
  The value of everything produced within a country.
   
• Net income from abroad
  The income earned by residents working or investing overseas, minus what foreign residents earn in the country.
   
• Net taxes and subsidies
  Taxes and subsidies received from or paid to foreign governments.

So, the basic formula is:
 

GNI = GDP + Net income from abroad + Net taxes and subsidies from abroad

While GNP also considers foreign income, GNI focuses more on income received rather than what is produced.
 

That’s why major bodies like the World Bank, the EU, and HDI prefer GNI when comparing countries.

GNI helps us understand how much actual earning power a nation’s people have, not just what they produce.

Conclusion

Gross National Product (GNP) gives us a full picture of a country's total economic output by including all the income its people and businesses earn, both at home and abroad. It helps measure the true contribution of a country’s residents to the global economy. While it may not be used as widely as GDP, GNP still plays an important role in understanding national income, especially for countries with large numbers of citizens working or investing overseas.

FAQ’s

Can GNP be negative for a country?
Yes, if a country earns less income from abroad than it pays out, its GNP can be lower than its GDP, and in rare cases, it could even turn negative.

Why does GNP include citizens working abroad?
Because GNP focuses on what a nation’s people earn, no matter where they work or live, not just on where the goods or services are made.

Do remittances from overseas workers count in GNP?
Yes, the money sent home by workers abroad is part of the net income from overseas and is included in GNP.

How is GNP useful for smaller countries?
Smaller nations with many citizens working overseas can use GNP to understand how much income they gain from abroad, which GDP alone can’t show.

Can two countries have the same GDP but different GNPs?
Absolutely. If one country earns more from foreign investments or citizens working abroad, its GNP will be higher, even if GDP is the same.
 

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