GNP – It stands for Gross National Product. It is a projected value of the total worth of production and services, by citizens of a country, on its land or on foreign land, generally calculated over the course on one year.
Gross National Product measures the value of goods and services that the country’s citizens produced irrespective of their location. Gross National Product is one measure of the economic condition of a country, with the assumption that a higher Gross National Product provides a higher quality of living, remaining other things constant. This gives a much more realistic picture than the income of foreign nationals in the country as it is more dependable and permanent in nature. Gross National Product can also be calculated on a per capita basis to determine the consumer buying power of an individual from a particular nation, and an estimate of average wages, wealth, and ownership distribution within a society.
Calculation of Gross National Product
There are number of ways of calculating Gross National Product numbers. The expenditure approach governs aggregate demand, or Gross National Expenditure, by adding consumption, investment, government expenditure and net exports. The income approach and the closely related output approach sum wages, rents, interest, profits, non-income charges, and net foreign factor income earned. The three methods provides the same result because total expenditures on goods and services (GNE) is same as the value of goods and services produced (Gross National Product) which is equal to the total income paid to the factors that produced the goods and services (GNI).
Expenditure Approach to calculating GNP: GNP = GDP + NR (Net income from assets abroad (Net Income Receipts).
Applications of Gross Domestic Product and Gross National Product numbers
Gross Domestic Product and Gross National Product figures are both calculated on a per capita basis to give a picture or estimate of a country’s economic development. GDP (or Gross Domestic Product) may be compared directly with GNP (or Gross National Product), to analyze the relationship between a country’s export business and local economy. A region’s GDP is one of many ways of measuring the size of its local economy whereas the GNP measures the overall economic strength of a country.
Example to differentiate GDP & GNP
E.g. if TCS or Infosys has a 100% owned unit in United States, and that office exports US$1Billion worth of services outside US, then US$1 Billion will be added to the GDP of US. On the other hand, it will not be added to the GNP value since the export is done by an Indian company and not an US company.