Gross Domestic Product (GDP) measures the total value of all goods and services produced within a country’s borders over a specific period, typically a year or a quarter.
Gross National Product (GNP) and Gross Domestic Product (GDP) are both key indicators used to measure the economic performance and size of a country’s economy but they differ in their scope and focus.
What is GDP?
Gross Domestic Product (GDP) measures the total value of all goods and services produced within a country’s borders over a specific period, typically a year or a quarter. It considers the value of production regardless of the nationality of the individuals or entities involved in the production process. GDP encompasses consumption, investment, government spending, and net exports (exports minus imports). Essentially, GDP reflects the economic activity occurring within a country’s geographic boundaries.
What is GNP?
On the other hand, Gross National Product (GNP) measures the total value of all goods and services produced by the citizens or entities of a country, regardless of where they are located. It includes the income earned by citizens and companies of the country, both domestically and abroad, during a specified period. GNP adds net income from abroad to GDP and subtracts net income earned by foreign residents within the country. This adjustment accounts for income flows between residents and non-residents.
GDP Vs GNP – Key Difference
The key difference between GDP and GNP lies in their treatment of income earned abroad. GDP focuses solely on economic activity within a country’s borders, while GNP accounts for the income generated by a country’s citizens, whether domestically or internationally.
In practical terms, GNP can differ from GDP in countries with significant international investment or a large number of citizens working abroad. For example, if a country has many multinational corporations or citizens working in foreign countries, its GNP may be higher than its GDP due to the earnings generated overseas.
Say for instance, Country B has a GDP of $800 billion and a GNP of $850 billion. This discrepancy stems from significant earnings by Country B’s citizens abroad. While GDP measures economic output within borders, GNP includes income earned domestically and overseas by citizens, indicating their contribution to the global economy.
In summary, GDP measures the total economic output within a country’s borders, while GNP includes the income earned by citizens and businesses, both domestically and abroad. Understanding these concepts helps policymakers, economists, and investors gauge a country’s economic health and international economic relationships.
When were the words GDP and GNP created?
The term “Gross Domestic Product” (GDP) was first coined by the economist Simon Kuznets in a report to the US Congress in 1934. Kuznets developed the concept as a measure to track the economic performance of the United States during the Great Depression. Initially, GDP was intended to provide policymakers with a comprehensive understanding of the country’s economic activity, including production, consumption, and investment. Over time, GDP has become a widely used indicator worldwide to assess the size and growth of national economies.
Meanwhile, the term “Gross National Product” (GNP) was first used by economist Colin Clark in 1939 in his book “National Income and Outlay.” Clark developed the concept as a measure to assess the total economic output of a country, including the income generated by its residents both domestically and abroad. GNP became a significant indicator for economists and policymakers to understand the economic performance and size of a nation’s economy.
Source:financialexpress.com