Difference Between GDP and GNP

Before we proceed on to distinguish between GDP and GNP, let us discuss a few key terms related to those concepts.


National Income 

National income broadly means the value of services and goods that are produced by a country within a particular financial year. It can be considered as the net outcome of all the economic activities. It amounts to the income that accrues to a country arising from all the economic activities combined within a financial year.

For instance, the revenues that are generated by the country’s companies, the tax revenues or the paid wages will amount to national income. 


Domestic Income 

Domestic income is the aggregate of all the factors of income that are found to be generated by the production units located within a country’s domestic territory. Domestic income is calculated within a particular financial year. 

The domestic factor includes the factor of undertaking business within the same country as its principal. 


Difference Between National Income and Domestic Income 

The major point of difference between domestic income and national income is that the factors that may comprise domestic income may not fall under national income and vice versa. It is due to the fact that national income is inclusive of the earnings of regular residents irrespective of their place of income. On the contrary, the earnings under domestic income will have to be necessarily generated within a country’s domestic territory. 

Few Instances are Mentioned Below –

  • For salary that is earned by an Indian employee engaged in Malaysian consulate in India, the income will be considered as national income considering he or she is an Indian resident. However, the same shall not fall under domestic income given that Malaysian consulate is not a part of Indian domestic territory.

  • In the instance of profits that are earned by a foreign bank branch in India will be covered under domestic income as those are generated within the domestic territory. However, on account of the factor income being paid overseas, it will not fall under national income.


Now Let us Find out What is the Difference Between GDP and GNP. 

What is GDP?

The gross domestic product or GDP allows the measurement of the economy size by considering the total amount of services and goods that are produced within a country’s territory within a specific financial year. 

It may consider the newly-produced services and goods as well only when it is generated within country borders. 

The GDP is calculated in the following way -

GDP = G + I + C + (X – M)


Where, 

C = Private consumption 

I = Gross investment 

G = Government investment or Government spending 

X = Exports 

M = Imports 


What is GNP?

The gross national product or GNP is the aggregated value of all the goods and services which are produced by the country’s residents within a particular financial year. 

GNP categorically excludes the income which is generated by foreigners who are only residing within the territory of the country. 

The GNP is calculated as -

GNP = C + I + G + X + Z


Where, 

C = Consumption 

I = Investment 

G = Government 

X = Net exports 

Z = domestic resident’s net income 


GNP v. GDP

The GDP and GNP differences can be understood from the following points. 

Parameters

GNP

GDP

Concept 

The gross national product amounts to the valuation of such services and goods produced by a citizen of a country without any constraint on geographical boundaries. It is computed within a particular financial year.

The gross domestic product amounts to the valuation of such services and goods which are produced within the geographical confines of a country. It is computed within a particular financial year.

Purpose 

Gross national product is for measuring all production by the country’s nationals 

Gross domestic product is only for measuring the domestic production within the geographical boundaries of a country. 

Focus 

The production made by the country’s citizens irrespective of the boundary 

The production made only on the domestic front of a country 

What it seeks to measure 

Measurement of the contribution of its citizens towards its economy 

Measurement of the strength of the economy of a country 

Measuring productivity 

Production is measured on an international scale 

Production is measured only on a domestic scale 

Exclusion 

Services and goods which are produced by foreigners residing within the country is excluded in the gross national product 

Services and goods which are produced outside the domestic economy of a country is excluded in the gross domestic product 


To find out more about GDP and GNP, you can refer to the online materials on our website. Also, install Vedantu’s app to start learning from anywhere.

FAQ (Frequently Asked Questions)

1. What is GDP?

The gross domestic product or GDP is the measurement of economic activity within the national boundaries of a country. It amounts to the sum of the prices or the market values of all the final services and goods which are produced in an economy within a specified period of time. It indicates the worth of the country’s out in the specific currency.

The equation of GDP is the following –

GDP = C + I + G + (X – M)


Where, 

C = Private consumption 

I = Gross investment 

G = Government investment or Government spending 

X = Exports 

M = Imports 

2. What is GNP?

GNP is the estimated total value of all the final services and products that are produced by the residents of the country within a specific time period.

The equation of GNP follows –

GNP = C + I + G + X + Z


Where, 

C = Consumption 

I = Investment 

G = Government 

X = Net exports 

Z = domestic resident’s net income 

3. Explain the Difference Between GDP and GNP.

Even though both GDP and GNP indicate the incomes and national output of an economy, the major difference between GDP and GNP relates to the former being a measure of national income that is produced within a particular country. On the other hand, the latter amounts to the net income receipt originating overseas. The gross domestic product covers mainly the production within an economy. The gross national product may also include depreciation and taxes.