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.) |
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
VS
GNP
- Product by normal residents
- Includes income earned by residents from abroad
- Excludes income of foreigners inside country
- Better indicator of income of residents
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: