Gross National Product - Explained
What is GNP?
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Table of ContentsWhat is Gross National Product?How is Gross National Product Calculated?Difference between GDP and GNPAcademic Research on Gross National Product (GNP)
What is Gross National Product?
GNP, known as Gross National Product, is the total amount of final goods and services that a country produces in a given year.
How is Gross National Product Calculated?
Gross National Product is the sum of personal consumption, personal domestic investment, government spending, net exports (exports less imports), and income received by local residents as a result of foreign investments, less income received by foreign residents as a result of local investments. GNP refers to the amount of the total output that the residents of a nation produce. Considering this statement, GNP includes the output that nations residents generate beyond the nations boundaries, and excludes anything that is generated by foreign residents within the country. Also, GNP doesn't take any intermediary products and services into consideration for avoiding double-counting problems.
Difference between GDP and GNP
GDP (Gross Domestic Product), when added to the net income received by local residents from beyond the nations boundaries, and subtracted from the net income that foreign residents receive from the investments made within the nation results in Gross National Product. Talking about the discrepancy in GDP and GNP, the products and services that the firms of a nation produce within its boundaries is included in the GDP, but not GNP of the nation. It is so because the final output is not meant for consumption for domestic markets, and is sent to the foreign nations. Because of providing more accuracy in knowing how well the economy is performing, and how much income it is actually generating, GNP is preferred more over GDP. The income generated from the sale of goods and services produced by foreign firms in a nation is transferred internationally to foreign residents. Then, there are times when local firms procure goods and services internationally, and sell them in the country, thereby bringing the income back to domestic residents. Such variations cause discrepancies in GDP and GNP. The concept of GDP came into existence in the US in 1991 due to globalization of the whole economy. The foreign trade relations of nations are the major cause of difference between GDP and GNP.
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