Gross National Product (GNP)

Gross national product (GNP) is the total market value of the final goods and services produced in a given period by the residents of a country, including the income they earn from work and investments abroad, and excluding income earned inside the country by non-residents. It is calculated by taking gross domestic product (GDP) and adding net primary income from the rest of the world.

GNP was the headline measure of the US economy from the 1930s until 1991, when the Bureau of Economic Analysis switched to GDP to align with international practice. Under the United Nations System of National Accounts, the equivalent concept is called gross national income (GNI), which the World Bank uses to classify countries by income level. GNP and GNI are now often used interchangeably, although GNI is the official modern term.

GDP and GNP answer two different questions. GDP asks: how much was produced inside this country's borders? GNP asks: how much did this country's own people and companies earn, wherever in the world they earned it? Think of a family. GDP is like counting everything made in the family's house, even by visiting guests. GNP counts what the family members earned, including the daughter working in another city, but not what the guests earned while staying.

For most large countries the two figures are close. They drift apart where many foreign companies operate locally and send their profits home, or where many residents earn income abroad.

The relationship between the two measures is:

• $\text{GDP}$ is the value of output produced within the country's borders.
• $R$ is primary income received from abroad by residents: wages, interest, dividends and profits earned on overseas work and assets.
• $P$ is primary income paid to non-residents: profits of foreign-owned firms, interest on debt held by foreigners and wages of non-resident workers.

The difference $R - P$ is net primary income (also called net factor income from abroad). If a country's GDP is 500 billion, residents receive 30 billion from abroad and foreign owners take out 45 billion, then $\text{GNP} = 500 + 30 - 45 = 485$ billion. Note that personal remittances from migrants who live abroad permanently are secondary income, not primary income, so they are counted in gross national disposable income rather than in GNP.

The gap is large in a few well-known cases:

• Ireland. Profits of multinational companies based there for tax reasons inflate GDP well above the income residents actually keep; Ireland's Central Statistics Office introduced a modified measure, GNI*, in 2017 to strip out these effects.
• Luxembourg. Many workers commute from France, Belgium and Germany, so wages paid to non-residents make national income much smaller than domestic output.
• The Philippines. Earnings of short-term overseas workers and seafarers count as primary income from abroad, so national income is higher than GDP.
• Heavily indebted economies. Large interest payments to foreign creditors push national income below GDP.

Countries with big foreign direct investment inflows tend to have GNP below GDP, while countries that own many assets abroad, such as Japan, tend to have GNP above GDP. These flows also appear in the primary income account of the balance of payments and therefore in the current account balance.

Modern national accounts grew out of the national income estimates Simon Kuznets prepared for the US Congress in 1934, and wartime planning in the 1940s made a total output figure essential for macroeconomic management. GNP became the featured US measure and was watched closely through the post-war decades of Keynesian demand management. In 1991 the Bureau of Economic Analysis made GDP the headline figure, citing consistency with the international System of National Accounts and with US employment and productivity statistics, which are based on production within the country. Most other countries had already made the same switch, and the 1993 revision of the System of National Accounts renamed GNP as gross national income to stress that it measures income rather than output.

GNP and GNI are better guides than GDP to the resources a country's residents can draw on, which is why income-based measures are used for World Bank lending categories and for comparing living standards per head, often adjusted by purchasing power parity. GDP remains the preferred measure of production and of the business cycle, because it ties more directly to employment and productivity within the country. Both share the general limits of national accounts: they ignore unpaid household work, struggle with the informal economy, say nothing about how income is distributed and do not subtract environmental damage. A net version, net national product, deducts the depreciation of capital goods, and some economists argue it better reflects sustainable income.

• U.S. Bureau of Economic Analysis: GDP as a measure of U.S. production
• Central Statistics Office (Ireland): National Accounts