Gross National Product (GNP)

Meaning and definition of Gross National Product

Gross National Product (GNP) can be defined as an economic statistic which includes Gross Domestic Product, plus any income earned by the residents from investments made overseas. Also, the income earned within the domestic economy by overseas residents. As explained by Investopedia, Gross National Product (GNP) refers to a quantification of economic performance of a country. Also, it measures whatever goods and services are generated by the citizens and whether these are produced within the borders of the country.

However, GNP does not discern between qualitative improvements in the state of technical arts, like increasing computer processing speeds, and quantitative increases in goods, like number of computers produced, and considers both as types of “economic growth.”

Formula for Gross National Product

The general formula used for Gross National Product is:

GNP = GDP + Net factor income from abroad

Where,

GDP = Gross Domestic Product

Net factor income from abroad = income earned in foreign countries by the residents of a country – income earned by non-residents in that country

Why is GNP required?

The Gross National Product is helpful in measuring the contribution of a country’s residents to the flow of goods and services inside and outside the national territory. Therefore, Gross National Product is the basic concept of national income accounting.

Measurement of GNP

The GNP is measured at:

• Current market prices (Nominal GNP)

This method of estimating the GNP involves measuring the GNP at the prices of goods and services being measured at the prices existing in the market in current year.

• Constant prices (Real GNP)

Through this method, Gross National Product is estimated at a fixed price of a specific base year.

Calculating GNP

The main steps involved in calculation of GNP are as follows:

• Sum up the total consumer spending, government spending and private investing by the citizens of a given country.
• Calculate the net exports by deducting the exports made by a country’s citizensfrom the total amount of a country’s imports.

Add up the net exports for the citizens of a country to the expenditure by its citizens worldwide thus reaching the GNP.