GNP vs GDP

Posted: March 3, 2013 in Current affairs
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gdp-growthrate

GNP vs GDP
GNP or gross national product and GDP or gross domestic product are both measures of economic development. When you calculate the estimated value that defines the worth of any country’s services provided and production carried out over a whole year, then you refer to it as that country’s GDP.

On the other hand, GNP refers to the GDP added to the total amount of capital gain from all investments made abroad with the amount of income that has been earned by foreign nationals in that country subtracted from the total. Meanwhile, the formula to calculate GDP is addition of consumption, investment, government spending, exports with imports subtracted from the total.

Both terms are used in the sectors of finance, business and forecasting of economic trends. But while, GDP captures an image of the domestic economic strength of a country, GNP captures an image of how the nationals of a particular country are faring financially. GNP ignores the production area but focuses totally on the nationals of a particular country and businesses and industries owned by them irrespective of where they are located.

Further, GDP is also taken into account on the basis of the current prices in the period being studied. It includes three variants which are:

  • Nominal GDP: is the production of services and goods that are valued at the current price prevalent in the market.
  • Real GDP: is the production of goods and services that are valued at constant prices and are not affected by market fluctuations. This calculation helps economists to figure out if production in a country has improved or not without any reference to how the purchasing power of the country’s currency has changed.

In countries where there is very high foreign investment, the GDP is always much higher than the GNP. This is the reason the difference between the two is very trivial when it comes to America. But, is extremely high when it comes to countries like Saudi Arabia.

[The image shows the GDP growth per capita of each country. As seen in the image China has the highest GDP growth in the world]

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