What’s it: Gross national product (GNP) is the total monetary value of the products and services produced by a country’s citizen, regardless of where the location of production. The production location may be in their country or outside the country. So, for example, the gross national product considers your output and the output of your friends or relatives working abroad.
Why GNP is important
You can use the gross national product (GNP) to measure the welfare, standard of living, and income of a country. Suppose many citizens work or national companies operate abroad and have a significant portion of the output. In that case, GNP might be an important indicator for you to look at. But, it has limitations.
Unlike gross domestic product (GDP), changes in GNP may not have direct impacts to other economic variables. Say, the output of Indonesian national companies operating abroad has increased significantly. It haven’t a significant impact on employment or domestic income. The company will recruit local workers where the production facilities are located, not domestic workers, such as you or your co-workers.
Because of this, economies and investors are usually more concerned with GDP than GNP. The first provides a more accurate picture of a country’s economic health, including in relation to indicators such as inflation, unemployment, investment, interest rates, monetary policy, and fiscal policy.
What is the difference between
GNP Vs. GNI
GNP measures the same thing as gross national income (GNI). It is similar to the GDP calculation through the production (output) approach and the income approach.
- GNP measures output by citizens, regardless of the location of production, whether at home or abroad. For Indonesia’s GNP, it excludes the production of foreigners or foreign companies around you.
- GNI measures income by citizens, regardless of where they earn it, whether at home or abroad. For Indonesia’s GNI, it excludes the income of foreigners who live and foreign companies operating in Indonesia.
GNP vs PDB
Like GDP, GNP is a measure of the aggregate output of the economy. It’s just that it doesn’t take into account the production location and focuses more on who is producing it.
So, for the case of Indonesia,
- GNP only takes into account the output of Indonesians, whether working in Indonesia or abroad. The output of foreigners working in Indonesia is not included in the calculation.
- Gross domestic product (GDP) considers the output produced by those in Indonesia, whether foreigners or not. It does not include output from Indonesians working abroad.
How to measure GNP
As I stated earlier, to measure the aggregate economic activity, the income approach, the expenditure approach, and the output approach will produce the same figures. Because they measure basically the same thing. You can explore the topic of the circular flow of income.
Next, I will take the case of Indonesia and use the GDP expenditure approach. The formula for GNP is:
GNP = C + I + G + NX + NFIA
- C = Consumption
- I = Investment
- G = Government expenditure
- NX = Net exports
- NFIA = Factor income from abroad to Indonesia minus factor income from Indonesia to abroad. Factor income is the income earned by factors of production providers.
You can see, apart from NFIA, the other four are components of the GDP of the expenditure approach. Hence, we can write the relationship between GDP and GNP as follows:
GNP = GDP + NFIA