How is Gross National Product (GNP) Calculated? Steps & Examples
Gross National Product (GNP) is an important term in the study of Economics and Commerce. It refers to the total value of all goods and services produced by the residents of a country, regardless of whether the actual production takes place inside the country or across international borders. Understanding GNP helps in analyzing national economic performance and comparing how countries integrate with the global economy. GNP is distinct from GDP (Gross Domestic Product), which is focused solely on activity within a country’s borders.
What is Gross National Product (GNP)?
GNP measures the economic value of all goods and services created by a nation’s citizens, no matter where that production happens worldwide. It includes income earned by residents from overseas investments. However, it does not include the income from foreign investments within a country's domestic borders. This distinction means GNP tracks the output tied to a nation’s people rather than its territory. GNP is used by economists to assess how a country’s companies, resources, and workforce contribute both domestically and internationally.
GNP Formula and Calculation Method
The GNP formula is simple but powerful:
GNP = GDP + Net income from abroad
Here, "net income from abroad" means the income earned by residents through overseas investments, minus any income paid to foreign residents who are working or have invested within the country.
Stepwise Approach: Calculating GNP
- Calculate the country’s Gross Domestic Product (GDP). This includes all goods and services produced within the country’s borders.
- Add the total income earned by the country's residents from overseas activities (such as investments, jobs, and businesses operated abroad).
- Subtract any income earned by foreign nationals or firms inside the home country.
Practical Example of GNP Calculation
Suppose a country has a GDP of ₹500 crore. Its citizens earn ₹30 crore from resources and investments abroad, while foreign residents in the country earn ₹10 crore. The GNP would be:
- GNP = ₹500 crore + ₹30 crore (income from abroad) - ₹10 crore (income to foreigners)
- GNP = ₹520 crore
This calculation shows the complete economic contribution by residents, regardless of whether the production occurred locally or internationally.
Key Differences: GNP vs. GDP
| Aspect | Gross National Product (GNP) | Gross Domestic Product (GDP) |
|---|---|---|
| What It Measures | Output by country’s citizens, both inside and outside the country | Output within country’s borders, regardless of nationality |
| Includes | Domestic production + overseas income by residents | All production inside national borders |
| Excludes | Foreigners’ income inside the country | Residents’ income earned abroad |
| Interpretation | Best for measuring a country’s global economic activities | Best for measuring a country’s domestic economic health |
Why Is the Difference Important?
A large gap between GNP and GDP suggests a nation is heavily involved in the global economy—either by earning significant income from sources abroad or by having many foreign entities operating domestically. This is an important factor when comparing different countries or examining the impact of international business.
To explore more, see Difference Between GDP and GNP.
What Does Gross National Product Measure?
GNP is used to measure the total production output linked to the residents of a nation. It helps governments and economists understand how much the citizens, companies, and organizations of a country contribute to economic activity, not only at home but also through international investments and businesses. If residents or companies operate factories or provide services in other countries, that output is added to their home country's GNP.
GNP in Context: Example Analysis
Imagine a country with a GNP much higher than its GDP. This indicates its residents and businesses are earning significant income from overseas activities. Such a country is likely increasing its international engagement through financial investments, trade, or multinational production. In contrast, if GNP is lower than GDP, it may mean that foreign companies in the country are earning more than the country's own citizens earn overseas.
Applying GNP: Concepts and Commerce Practice
- To compare a country's economic performance internationally, economists use GNP alongside GDP.
- GNP helps explain the effect of foreign investment and the importance of nationals’ overseas activity on economic growth.
- If a country relies more on foreign companies for its domestic economy, GDP may exceed GNP.
Explore Uses of GDP and GNP Data for additional details.
Summary Table: GNP and GDP Comparison
| Term | What It Includes | Key Focus |
|---|---|---|
| GNP | National output by citizens at home and abroad; excludes foreign nationals’ output inside the country | Residents' total contribution worldwide |
| GDP | All output within country borders, regardless of producer's nationality | Total domestic production |
Taking the Next Step in Learning
Mastery of concepts like GNP and GDP is crucial for building a strong foundation in Commerce. Continue your learning with more key topics like Gross Domestic Product (GDP), National Income and Related Concepts, and Economic Growth and Development, available on Vedantu.
Practice case studies, apply formulas in real-world examples, and compare GDP and GNP for different countries to deepen your understanding.
FAQs on Gross National Product (GNP): Meaning, Formula, and Calculation
1. What is Gross National Product (GNP)?
Gross National Product (GNP) is the total value of all final goods and services produced by a country's residents in a given time period, regardless of where they are located.
• It adds income earned by residents from abroad and subtracts income paid to foreigners within the country.
• GNP is an important indicator for measuring national output and income.
2. What is the formula for calculating GNP?
The formula for GNP is:
GNP = GDP + Net income from abroad
• Net income from abroad = Income earned by residents from overseas – Income paid to foreigners within the country.
• This aligns with CBSE and NCERT Commerce syllabus.
3. What is the difference between GDP and GNP?
GDP (Gross Domestic Product) measures the value of final goods and services produced within a country’s borders, while GNP includes production by citizens at home and abroad.
• GDP: Location-based output
• GNP: Ownership-based output (nationality)
• GNP = GDP + Net factor income from abroad
4. Why is GNP important in economics?
GNP is crucial because it:
• Measures total economic activity of a country’s residents
• Helps compare economic strength internationally
• Aids in understanding a country's role in the global economy
• Assists policymakers in framing economic and trade policies
5. How do you calculate GNP per capita?
GNP per capita measures the average income of a country's residents.
Formula:
GNP per capita = Total GNP / Population
• It indicates the economic well-being of average citizens.
6. Can you give an example of GNP calculation?
Yes, here is an example:
• Suppose a country’s GDP is ₹250 lakh crore.
• Income earned by residents from abroad: ₹15 lakh crore
• Income paid to foreigners: ₹10 lakh crore
Calculation:
GNP = ₹250 + ₹15 – ₹10 = ₹255 lakh crore
7. What is Net National Product (NNP)?
Net National Product (NNP) is obtained by subtracting depreciation from GNP.
Formula: NNP = GNP – Depreciation
• NNP indicates national income after accounting for asset wear and tear.
8. What is the difference between GNP and GNI?
GNP (Gross National Product) and GNI (Gross National Income) are very similar concepts.
• Both include income from overseas by residents and exclude foreigners’ income.
• In many modern economic contexts, GNI is used interchangeably with GNP, especially by international agencies.
9. What does a higher GNP than GDP indicate for a country?
A higher GNP than GDP means that the country's residents and businesses earn substantial income from overseas operations.
• It suggests strong international engagement and income inflow.
• Common in countries with significant investments or expatriate workforce abroad.
10. Where is GNP used in exams and practical applications?
GNP is frequently tested in:
• Board exam numericals and MCQs (CBSE, ISC, NTA)
• Case studies comparing GDP vs. GNP for India and other countries
• Calculation-based questions for national income accounting
Knowing GNP helps solve practical commerce problems and boosts exam accuracy.
11. How is GNP different from GDP in India?
In India, GDP measures value generated within national borders, including by foreigners, while GNP adds income earned by Indians abroad and subtracts foreigner income in India.
• GNP = GDP + (Indian residents’ income abroad – Foreigners’ income in India)
• This reflects India's global economic engagement.
12. What are common misconceptions about GNP calculation?
Common misconceptions about GNP calculation include:
• Mixing up GNP with GDP or GNI
• Forgetting to subtract income paid to foreigners
• Ignoring depreciation when asked for NNP
• Not aligning formulas with latest syllabus updates
Clear understanding and stepwise calculation are crucial for accuracy.
