Gross National Product (GNP) is an estimate of all the products and services owned by the residents of a country in a given period of time by all the means of production. The total value of all finished goods and services provided by a country’s citizens during a given financial year is known as Gross National Product (GNP). It is irrespective of their location. GNP also approximates the output of a country’s businesses, whether they are established within the country or abroad. It includes Gross Domestic Product (GDP) and income obtained by the residents from investments made overseas.
GNP suggests how a country’s people pledge to its economy. It reflects citizenship, notwithstanding the site of the ownership. GNP does not include the income of foreign residents within the country. It also does not tally the money earned in India by foreign residents and ignores products that have been manufactured by foreign companies.
Calculation of Gross National Product (GNP)
GNP is generally calculated by taking the sum of any income earned by residents from foreign investments excluding personal consumption expenditures, private domestic investment, government expenditure, net exports and income earned by foreign residents within the domestic economy. Net exports represent the difference that a country exports after subtracting imports of goods and services.
Formula for GNP = GDP + The Net factor income from abroad
or
GNP = C + I + G + X + Z
- Where C is Consumption
- I is investment
- X is net exports
- G is government
- Z is the net income received by domestic residents from overseas investments minus the net income earned by foreign residents from domestic investments.
KEY POINTS
- GNP measures the output of a country’s residents, regardless of the location of the actual basic economic activity.
- Income earned from foreign investment by residents of a country is counted in GNP but does not include foreign investment within the borders of a country. This is in contrast to GDP, which measures economic output and income based on location, not nationality.
- GNP and GDP can have different values, and a large difference between a country’s GNP and GDP may indicate greater integration into the global economy.
DIFFERENCE BETWEEN GDP & GNP:
- GNP i.e. total national product includes net foreign earned income instead of imports and exports. It includes net foreign investment income, whereas GDP does not.
- Within GNP, the value of output produced by 1 nation is calculated. Whereas all domestic production is counted in GDP.
- Through GNP, the level of production of a country or individuals and corporations residing in it is calculated. Whereas in GDP, the total gross domestic product is calculated. Read More GDP: It’s not just size, growth also matters
What are the drawbacks of the GNP?
1) Doesn’t consider a number of services: In several economies, services such as entertainment, transportation, laundry, and teaching are not considered while considering the GNP. This is one of the most severe drawbacks of the GNP as these services have a noticeable contribution in deciding the economic factor of a country.
2) Inflation enhances the value: While calculating the GNP, inflation enhances the measured value of the GNP. In a few cases, the net output value remained unchanged, and still changes are noticed in the GNP results.
3) Consider the unemployed activities too: The GNP considers the overall activity of all the citizens, some citizens such as housewives and students don’t perform any monetary activities. Thus, taking them into consideration is a negative and controversial point of the GNP.
4) Self-consumption amount is not included: All individuals or consumers hold a specific amount of their produce for self-consumption. This factor sometimes really charges a large amount, but is still not considered in the calculation of the GNP. This is once again a basic structural drawback of the GNP.
5) Fails to incorporate quality changes: Due to differences in the demand and supply phenomenon, the GNP fails to present reports on the quality changes. It over-estimates economic welfare of the people.
6) Inflate commodity taxes: The structure of the GNP inflates commodity taxes.
7) Manipulated income per capita: The Gross National Product (GNP) exaggerates the income per capita by showing a rise in normal incomes.
Depending on the GNP for long periods the composition of national output changes drastically. Also, calculating the net foreign income is not a worthy thing. And overall GDP is much better in calculating the country’s economic status.
