Gross National Product (GNP) › What is it, Characteristics
Gross National Product (GNP)
What is the Gross National Product (GNP)?
The gross national product or GNP is a macroeconomic indicator that measures the final production of goods and services generated , in a given time, by residents and national companies of a country, even if they are abroad .
Gross national product is also known as gross national income.
GNP is based on the criterion of nationality; Capital and foreign production generated within a country are not included in their calculations. The country of origin of a citizen or company determines where the GNP corresponds.
For example, a Mexican vehicle assembly factory has two branches abroad, one in Colombia and one in Brazil. The income obtained by the offices abroad will be part of Mexico's GNP.
For this reason, GNP differs from GDP. While the GNP only considers in its measurement the production of the citizens and companies of a nation, the GDP admits all the production, foreign or national, of a country.
Characteristics of the Gross National Product
- Macroeconomic indicator: GNP is a macroeconomic indicator that allows analyzing data that reflects the state of the economy of a country.
- It focuses on national production: it only takes into account the production factors of the citizens and companies of a specific nation, whether they are within the country or abroad.
- It reports on the production capacity of a country : as it focuses on the production of individuals or companies of a particular nation, it offers valuable information on the productive competition of its nationals.
- Avoid double calculation: exclude the calculation of intermediate products to avoid double calculation, since these are calculated in the final value of the product or service. For example, GNP includes the final price of a vehicle, but not of parts purchased separately by the manufacturer, such as tires.
- It is measured within a specified period: the data for the production of goods and services are calculated in a specific period of time, which is generally one year.
- Economic factors: takes into account government expenditures, personal consumption expenditures, national investments, manufacturing production, intangible goods, agriculture, the income of national residents abroad, exports, among others.
How is the Gross National Product calculated?
To calculate the gross national product it is necessary to have:
- GDP: the value of gross domestic product,
- RRN: the value of the income of national residents abroad, that is, salaries, interests, assets, etc.
- RRE: the value of the income of foreign residents in the country.
The value of the income of nationals (RRN) must be added to the GDP and subtract the income of foreigners within the country (RRE). It is calculated through the following formula:
GNP = GDP + NRN - ERR
However, the calculation of GNP can be affected by various reasons such as:
- changes in value between currencies,
- not taking into account family allowances or household resources,
- His analysis does not reflect how the economy of a country evolves, but it does reflect that of citizens.
What is GNP for?
Knowing the gross national product is useful because it shows us the state of the economy of a specific nation from different aspects.
- It offers indicators to know how the economic growth of a country has been, during a specific period.
- It allows to quantify the total goods and services generated by a nation, its companies and its citizens.
- It facilitates the formulation of economic policies and regulations.
- It makes it possible to measure and solve economic problems, such as inflation or the growth of poverty.
- It reflects important information about the income from manufacturing, investment or savings in a country.
Difference between GNP and GDP
Gross national product (GNP) differs from gross domestic product (GDP), since GNP only takes into account for its calculations the production of a nation's own citizens and companies (even if they are located abroad).
GDP, for its part, does include in its measurement all the production that takes place within a country, regardless of the origin of the companies or individuals.
Both indicators allow us to attend to different particularities of a country's economy by offering concrete data on its national production, the presence of foreign capital or the way it behaves as an economy depending on the size of one or the other.
National Production
The GNP measures the economic income of national residents who are in the country and abroad. Instead, GDP measures the economic income of a country's factors of production without distinguishing between national and foreign residents.
The GNP allows us to know what is the total income produced by a nation, considering its citizens and its companies. The GDP, on the other hand, shows us a more complete picture, since it incorporates all the factors that intervene in the production of a country (national and foreign companies and citizens).
Presence of foreign capital
Both indicators also make it possible to verify the dimension of the presence of foreign capital in a country.
If GNP, for example, is higher than GDP, this means that there is little presence of foreign capital in the country. Therefore, the country may need to apply policies to stimulate foreign investment.
On the other hand, if the GDP is higher, it is because there is a greater presence of foreign capital in the country, which can be a wake-up call to stimulate domestic factors of production.
Types of economy according to GNP and GDP
The correlation between the values of GNP and GDP can also be an indicator of whether an economy is open or closed.
For example, if GNP and GDP differ from each other, it is an open economy (as are most of the world's economies today), since both domestic and foreign factors participate in production.
On the other hand, we are facing a closed economy if the values of GNP and GDP are equal, because there is no economic exchange or movement of income with other countries. However, this is a rare type of economy today, and more typical of autarkic systems.
GNP per capita
Income per capita is a macroeconomic indicator that is used to gain knowledge about the performance and wealth generated by economic activities according to the workforce.
Per capita GNP is useful because it allows measuring the economic productivity of a country, although it does not take into account whether or not the quality of life of its inhabitants has improved.
It is obtained by dividing the GNP by the number of inhabitants of a country. This allows the GNP to be compared between countries with different numbers of inhabitants.
Net national product (PNN)
The net national product is a macroeconomic indicator. It calculates the total value of the production of goods and services carried out by national people or companies that are inside or outside the country, during a given period.
The PNN takes into account the depreciation or consumption of fixed capital. Its objective is to obtain a figure of the country's national income, taking into account the depreciation of the investments made in the period for which it is calculated in GNP.
Update date: 07 February 2021.
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