What is the difference between GDP AND GNP?
A country’s economic growth depends on various factors, one of them being the national income. National income is defined as the total value of all the goods and services produced by the country in a certain year. It is an important factor in determining the progress of a country by evaluating the various economic activites that takes place in a country. Now out of all the various factors that are employed in determining the national income of a particular country GDP and GNP are the key factors that are used mainly.
GDP and GNP are two of the most important terms which are needed to evaluate the economic growth of the country. They help in determining the financial health and economic phase of a country in a given timeframe.
Now GDP and GNP vary in the way both the terms define the scope of a country’s economy. Here are the differences between them.
On the basis of definition
GDP stands for Gross Domestic Product which is defined as the total worth of goods and services within the geographical limits of a country. Whereas GNP stands for Gross National Product which is defined as the total worth of goods and services produced by the citizens of a particular country irrespective of their geographical locations.
On the basis of scale of productivity
While the GDP is measured on a local scale the GNP is measured on an international level. So in GDP we talk about all the productivity that takes places within the boundary of a country. In this, any person who has been contributing to the productivity counts. But in GNP productivity is measured on large scale. In this any person who is a citizen of that particular country contributes to the productivity of that country irrespective of the place they have been working on. GNP takes into consideration all the production of products by the enterprises which are owned by the citizen of that particular country. So even if they work on an international boundary, they still contribute to the GNP.
On the basis of calculation
Now both GDP and GNP are calculated in different ways. Here is the formula given below-
GDP is calculated by using the following formula
GDP= Consumption + investment + government spending+ Net worth
While GNP is calculated as-
GNP= GDP – NFIA
(NFIA – Net Factor Income from Abroad)
On the basis of dependency and focus area
While the GDP depends on the geographical location, GNP depends on the citizenship of the country. Also since GDP is calculated within the national boundaries their main focus area is the domestic production. On the other hand, GNP is calculated on an international level depending on a country’s citizens so its focus area is the production of goods and services by all the citizen of that particular country.
Thus both GDP and GNP vary from one another in many ways. In one hand where GDP depicts the domestic economy of a country on the other hand the GNP focuses on the ways in which the citizens of a country are contributing in the economic growth of their country.