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GDP & GNP – Definitions & Differences

This chapter focuses only on GDP vs GNP, a favourite exam question.

1. Definitions

(a) Gross Domestic Product (GDP)

GDP is the money value of all final goods and services produced within the domestic territory of a country during a year, irrespective of who owns the factors.

(b) Gross National Product (GNP)

GNP is the money value of all final goods and services produced by normal residents of a country during a year, irrespective of where they are located.

Relation:

GNP = GDP + Net Factor Income from Abroad (NFIA)

NFIA

NFIA = Income earned by residents from abroad − Income paid to non-residents.

2. Simple Numerical Illustration

Suppose:

GDP of country = ₹5,000 crore.
Residents earn factor income from abroad = ₹400 crore.
Foreigners earn factor income from this country = ₹300 crore.

Then:

NFIA = 400 − 300 = ₹100 crore
GNP = GDP + NFIA = 5,000 + 100 = ₹5,100 crore

Calculating GNP from GDP

Step 1 (Find NFIA = income from abroad − income to abroad.)
Add: Step 2 (Add NFIA to GDP to get GNP.)

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3. GDP vs GNP – Comparison Table

GDP

Product within domestic territory
Includes income of foreigners working inside country
Excludes income earned by residents from abroad
Indicator of domestic production capacity

GNP

Product by normal residents
Includes income earned by residents from abroad
Excludes income of foreigners inside country
Better indicator of income of residents

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4. Quick Revision Points

GDP – by where produced (domestic territory).
GNP – by who produces (normal residents).
GNP = GDP + NFIA.

5. Quiz Time 🎯

Test Your Knowledge

Question 1 of 5

1. GDP measures production:

By residents anywhere

Within domestic territory

Only by government

Only in agriculture

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