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Gross National Product

DEFINITION

The definition for the gross national product, or GNP, is found by determining the value of all services and goods that are made by businesses and residents of a country, no matter what the location for production is. The gross national product, or GNP, tallies the investments that are made by businesses as well as the residents of the United States that are made both outside and inside of the country. To put this into simpler terms, it gathers the value of any and all products which are manufactured by a company that is domestic, no matter where the products are actually made. Income that is earned inside the United States from businesses or residents that are foreign are not included into the gross national product. Products that are manufactured by firms that are overseas are also excluded from the gross national product.

EXPLANATION

So, gross national product is the complete monetary value measured, from the residents of a country, using their total output that is produced. This means that even output that is produced by a resident, that is foreign, who lives within the borders of the country, also needs to be included in calculations for gross national product for a country. It does not include services or goods that are intermediary in order to prevent any double-counting. This is because intermediary goods are already counted within the value of the complete service or product.

Up until 1991, gross national product was used as the main way to measure activity economically in the United States. After 1991, the United States began instead using gross domestic product to measure this instead. This is due to the national economies and the increase of it’s global nature as well as the dependence they have on stuff such as supply chains and labor forces.

Formula For GNP

In order to calculate gross national product is the following formula:

Y = C + I + G + X +Z

What this stands for is GNP = Consumption plus Investment plus Government plus X, which stands for imports minus exports, or net exports, plus Z, which is the net income that is gained from domestic investments by foreign residents minus the net income that is received from overseas investments by domestic residents.

GDP Versus GNP

The gross national product for the United States says a lot for an American’s financial well-being as well as the United States corporations that are based in multiple nations. It does not say much in regards to the economy’s health for the United States.

In order to find out about the health of the economy for the United States, you would look at the gross domestic product, or GDP. The gross domestic product measures all production that is done within a country, no matter who is making the product.

Because of the gross national product being the same as gross domestic product other than subtracting the income from foreign residents that have domestic investments, the gross national product is a measure that is more accurate for the income of a company rather than just noting it’s production. Both GNP and GDP add net income that is gained through residents that are domestic from investments that are overseas.

Examples of GDP versus GNP

Let’s look at an example of GNP versus GDP to get a better understanding. Let’s use the output from a Toyota plant in Indiana, for example; this would not be included into the GNP, despite it being counted in GDP. Why is that? This is because the revenue earned from the Toyota car sales go to Japan, despite them being made and sold within the United States.

The sales are included into the GDP because these sales benefit the economy in the United States. As due to this plant in Indiana, there are jobs that are created, and with those jobs, residents will use the wages that they earn to purchase services and goods locally.

The same thing goes for Nike, which has a plant in Korea, the sales from the shoes made there will still be counted toward the gross national product for the United States, but will not be counted in the United States gross domestic product. The economic growth in the United States is not stimulated by the sales of these shoes as they were outsourced; however, it does boost the stock prices and earnings for Nike by the shoe’s profit and will contribute to a national income that is higher. In this instance, Korea’s economy would grow from the sale of these products.

In the above examples, you can see why the gross national product is not used as commonly as the gross domestic product is in order to determine the economy of a country. It would offer a picture that would be slightly inaccurate of the way that resources are used domestically. Another way to look at it is the following example, say that there was a drought in the United States that was severe, the gross national product would be higher than the gross domestic product. This is because United States investments of foreign workers would be affected, but the foreign holdings for United States residents would not be affected by the drought.

The gross national product is also affected by the currency exchange rates in a country and any changes that affect them. When the dollar weakens, the gross national product is boosted, and foreign holdings by residents of the United States become worth more. The United States economy’s state may not be reflected accurately in this instance, though. The gross domestic product eventually can be boosted, through a weak dollar, due to exports becoming cheaper, and this will increase production and sales.

GNP per Capita

A measurement of gross national product divided by the amount of people within a country is the gross national product per capita, or GNP per capita.  This is what makes it possible to compare what the gross national product for countries that are of varying sizes for populations.

So if you are wanting to compare between other countries for GNP you will want to use GNP per capita in order to get the most accurate result.

GNP by Country

If you are looking for the world’s gross national product by its country, then you would need to look at GNI, or gross national income. The World Bank replaced the gross national product with gross national income in order to compare in a more fair way when comparing between nations that have standards of living and populations that are widely different. To solve this issue, The World Bank uses GNI per capita.

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