What is the Gross National Product (GNP)?
The gross national product or GNP is a macroeconomic indicator that measures the final production of goods and services generatedin a given time, by national residents and companies of a country, even if they are abroad.
Gross national product is also known as gross national income.
The GNP is based on the nationality criterion; Their calculations do not include capital or foreign production that is generated within a country. The country of origin of a citizen or company determines where the GNP corresponds.
For example, a Mexican vehicle assembly factory has two branches abroad, one in Colombia and the other in Brazil. The income obtained by the headquarters abroad will form part of Mexico’s GNP.
For this reason, GNP differs from GDP. While GNP only considers in its measurement the production of a nation’s citizens and companies, GDP admits all production, foreign or national, of a country.
Characteristics of the Gross National Product
Macroeconomic indicator: GNP is a macroeconomic indicator that allows analyzing data that reflects the state of a country’s economy.
It focuses on national production: It only takes into account the production factors of the citizens and companies of a specific nation, whether they are located within the country or abroad.
Reports on the production capacity of a country: As it focuses on the production of individuals or companies of a particular nation, it offers valuable information about the productive competence of its nationals.
Avoid double counting: excludes the calculation of intermediate products to avoid double calculation, since these are calculated in the final value of the product or service. For example, the GNP includes the final price of a vehicle, but not those parts purchased separately by the manufacturer, such as tires.
It is measured within a certain period: Production data for goods and services is calculated over a specific time period, which is generally one year.
Economic factors: It takes into account government expenditures, personal consumption expenditures, national investments, manufacturing production, intangible goods, agriculture, income of national residents abroad, exports, among others.
How is the Gross National Product calculated?
To calculate the gross national product it is necessary to have:
GDP: the value of the gross domestic product,
RRN: the value of the income of national residents abroad, that is, salaries, interests, assets, etc.,
RRE: the value of the income of foreign residents in the country.
The value of the income of nationals (RRN) must be added to the GDP and the income of foreigners within the country (RRE) must be subtracted. It is calculated through the following formula:
GNP = GDP + RRN – RRE
However, the calculation of GNP can be affected for various reasons such as:
the value changes between currencies, not taking into account family allowances or domestic resources, its analysis does not reflect how the economy of a country evolves, but it does reflect the citizens.
What is the GNP for?
Knowing the gross national product is useful because it shows us the state of the economy of a specific nation from different aspects.
It offers indicators to know how the economic growth of a country has been, during a specific period. It allows quantifying the total goods and services generated by a nation, its companies and its citizens. It facilitates the formulation of economic policies and regulations. It makes it possible to measure and solve economic problems, such as inflation or the growth of poverty. It reflects important information about income from manufacturing, investment or savings in a country.
Difference between GNP and GDP
The gross national product (GNP) differs from the gross domestic product (GDP), since the GNP only takes into account in its calculations the production of a nation’s own citizens and companies (even if they are located abroad).
GDP, for its part, does include in its measurement all the production that takes place within a country, regardless of the origin of the companies or individuals.
Both indicators allow us to address different particularities of a country’s economy by offering specific data on its national production, the presence of foreign capital or the way it behaves as an economy depending on the size of one or the other.
National Production
The GNP measures the economic income of national residents who are in the country and abroad. On the other hand, GDP measures the economic income of a country’s factors of production without distinguishing between national or foreign residents.
The GNP allows us to know the total income produced by a nation, considering its citizens and its companies. GDP, for its part, shows us a more complete picture, since it incorporates all the factors involved in the production of a country (national and foreign companies and citizens).
Presence of foreign capital
Both indicators also allow us to verify the dimension of the presence of foreign capital in a country.
If the GNP, for example, is higher than the GDP, this means that there is little presence of foreign capital in the country. Therefore, the country may need to implement policies to stimulate foreign investment.
On the other hand, if the GDP is higher it is because there is a greater presence of foreign capital in the country, which can be a wake-up call to stimulate internal production factors.
Types of economy according to GNP and GDP
The correlation between GNP and GDP values can also be an indicator of whether an economy is open or closed.
For example, if GNP and GDP differ from each other, this is a open economy (as are most economies in the world today), since both national and foreign factors participate in production.
Instead, we are faced with a closed economy if the values of GNP and GDP are equal, because there is no economic exchange or movement of income with other countries. However, this is a rare type of economy today, and more typical of autarkic systems.
GNP per capita
Per capita income is a macroeconomic indicator that is used to gain knowledge about the performance and wealth generated by economic activities according to the workforce.
GNP per capita is useful because it allows us to measure the economic productivity of a country, although it does not take into account whether or not the quality of life of its inhabitants has improved.
It is obtained by dividing the GNP by the number of inhabitants of a country. This allows GNP to be compared between countries with different numbers of inhabitants.
Net national product (NNP)
Net national product is a macroeconomic indicator. Calculates the total value of the production of goods and services carried out by national people or companies located inside or outside the country, during a given period.
The PNN takes into account the depreciation or consumption of fixed capital. Its objective is to obtain a figure for the country’s national income, taking into consideration the depreciation of the investments made in the period for which it is calculated in GNP.
See also: