What is Gross National Product (GNP)?

What is Gross National Product (GNP)?

gross national product (GNP), total market value of the final goods and services produced by a nation’s economy during a specific period of time (usually a year), computed before allowance is made for the depreciation or consumption of capital used in the process of production. It is distinguished from net national product, which is computed after such an allowance is made.

The GNP is nearly identical to gross domestic product (GDP) except that the latter does not include the income accruing to a nation’s residents from investments abroad (minus the income earned in the domestic economy accruing to nonnationals from abroad). Gross national product is a convenient indicator of the level of a nation’s economic activity. In 1991 the United States

How to Calculate the Gross National Product?

The official formula for calculating GNP is as follows:

Y = C + I + G + X + Z

Where:

  • C – Consumption Expenditure
  • I – Investment
  • G – Government Expenditure
  • X – Net Exports (Value of imports minus value of exports)
  • Z – Net Income (Net income inflow from abroad minus net income outflow to foreign countries)

Alternatively, the Gross National Product can also be calculated as follows:

GNP = GDP + Net Income Inflow from Overseas – Net Income Outflow to Foreign Countries

Where:

GDP = Consumption + Investment + Government Expenditure + Exports – Imports

Gross National Product takes into account the manufacturing of tangible goods such as vehicles, agricultural products, machinery, etc., as well as the provision of services like healthcare, business consultancy, and education. GNP also includes taxes and depreciation. The cost of services used in producing goods is not computed independently since it is included in the cost of finished products.

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For year to year comparisons, Gross National Product needs to be adjusted for inflation to produce real GNP. Also, for country to country comparisons, GNP is stated on a per capita basis. In computing GNP, there are complications on how to account for dual citizenship. If a producer or manufacturer holds citizenship in two countries, both countries will take into account his productive output, and this will result in double counting. substituted GDP for GNP as its main measure of economic output.

What Does Gross National Product Measure?

Gross national product is one metric for measuring a nation’s economic output. Gross national product is the value of all products and services produced by the citizens of a country both domestically, and internationally minus income earned by foreign residents.

For instance, if a country had production facilities in a neighboring country and its home country, gross national product would account for both of these production outputs.

Importance of Gross National Product

GNP is considered as an important economic indicator by economists. It is used by them for finding solutions to the economic issues such as poverty and inflation.

When income is calculated on the basis of per person irrespective of the location, GNP becomes a much more reliable factor than GDP.

The information obtained from GNP is used for analysing the BoP (Balance of Payments). In some countries or unions, such as the European Union, economists use GNI or gross national income.