Difference Between GDP and GNP

National income is a macroeconomic variable that helps in determining the economic stability of a nation. It represents the total income accrued to a country from all the economic activities in a year.

The most preferred way of calculating national income involves two concepts, namely, GDP and GNP. GDP is known as Gross Domestic Product, and GNP is known as Gross National Product.

What is GDP?

GDP refers to the Gross Domestic Product and is a widely used measure to determine the size of the economy of a nation. It represents the total amount of goods and services produced in a country within a financial year.

GDP takes into account the purchases of newly-produced goods and services for a particular period. In calculating GDP, the focus is on the total value of goods and services produced within the country borders, irrespective of whether the value addition is due to residents or non-residents of the country.

Also Read about GDP and Welfare

There are two methods of calculating GDP

  1. Expenditure Approach
  2. Income Approach

Expenditure Approach takes into account adding up all the amount spent on goods and services during the period.

GDP = C + I + G + (X-M)

where:

C = Consumption spending

I = Business investment (capital equipment, inventories)

G = Government Purchases

X = Exports

M = Imports

Income Approach: Under the Income Approach, the GDP is calculated by adding up three factors

GDP = National Income + Statistical Discrepancy + Capital Consumption Allowance

Also Check: MCQ on GDP Deflator

What is GNP?

GNP is known as Gross National Product, and it represents the total value of goods and services produced by the residents of a country during a financial year.

GNP takes into consideration the income earned by the citizens of the country present within or outside the country. It excludes the income generated by foreign nationals who are residing in the country. GNP can be calculated as

GNP = GDP + NR – NP

Where,

GDP = Gross Domestic Product

NR = Net Income Receipts

NP = Net outflow to foreign assets

Let us go through the most crucial differences between the GDP and GNP in the following table.

Basis of Comparison GDP GNP
Definition The value of goods and services produced within the geographical boundaries of a nation in a financial year is termed as GDP The value of goods and services produced by a citizen of a nation irrespective of geographical limits in a financial year is known as GNP
Measurement Measures domestic production Measures production by nationals
Focuses on Production on the domestic level Production by citizens of a nation
What it measures Measures the strength of the country’s economy Measures residents contribution to developing the economy.
Productivity measured in Local Scale International Scale
Excludes Goods and services that are being produced outside the economy. Goods and services that are produced by foreigners living in the country.

This article brings out the major differences between the two important concepts of GDP and GNP that will help build a strong fundamental for the Commerce students. Stay tuned to BYJU’S for more such knowledge updates.