GDP vs. GNP: What's the Difference?

Gross domestic product (GDP) is the value of the finished domestic goods and services produced within a nation's borders. Gross national product (GNP) is the value of all finished goods and services produced by a country's citizens, domestically and abroad. GDP and GNP are calculated differently, but each represents the total market value of all goods and services produced over a certain period.

Gross Domestic Product (GDP)

GDP helps indicate the health of a country's economy. This metric counts the market value of all goods and services produced domestically. The gross domestic product measurement shows whether the economy is growing or contracting. The components of GDP include:

• Consumption: The value of the consumption of goods and services acquired and consumed by the country’s households.
• Government Spending: All consumption, investment, and government payments for current use.
• Capital Spending by Businesses: Spending on purchases of fixed assets and unsold stock by private businesses.
• Net Exports: The country's balance of trade (BOT), or the difference between exports and imports. A positive number indicates that the country exports more than it imports.

Nominal GDP and Real GDP

GDP is analyzed as real GDP or nominal GDP. A country's real GDP is the economic output with inflation factored in, while nominal GDP does not account for inflation. When the GDP rises, it means the economy is growing. Conversely, if it drops, the economy is shrinking. If the economy grows to full production capacity, inflation may rise.

During inflationary periods, central banks may step in to tighten their monetary policies to slow growth. When interest rates rise, consumer and corporate confidence drops. During these periods, monetary policy is eased to stimulate growth. Long periods of negative GDP, indicating more spending than production, can damage the economy. This can lead to job losses, business closures, and idle productive capacity.

The nominal GDP is usually higher than the real GDP because inflation is usually a positive number, even if relatively low. GDP is used to compare the performance of two or more economies, acting as a key input for making investment decisions. It also helps the government draft policies to drive local economic growth.

Gross National Product (GNP)

Where GDP looks at the value of goods and services produced within a country's borders, GNP is the market value of goods and services produced by all citizens domestically and abroad. GNP measures how its nationals are contributing to the country's economy. It factors in citizenship but overlooks location.

GNP does not include the output of foreign residents. A U.S.-based Canadian NFL player who sends their income to Canada or a German investor who transfers their dividend income to Germany will be excluded from the U.S. GNP but included in the country's GDP.

GNP is the sum of consumption, government spending, business capital spending, net exports, and the net income of domestic residents and businesses from overseas investments. This figure is then subtracted from the net income earned by foreign residents and businesses from domestic investment.

Example

According to the most recent data compiled by the World Bank, GDP and GNP numbers moved in sync in 2023 for these selected countries. Many American businesses, entrepreneurs, service providers, and individuals who operate globally helped the nation secure a positive net inflow from overseas economic activities and assets. This makes the U.S. GNP higher than the GDP for 2023.

Data Sources: World Bank DataBank.

Saudi Arabia's GNP is higher than its GDP. The Kingdom is a major oil exporter with enterprises and businesses spread around the globe. The income from these enterprises may be higher than the income lost due to foreign citizens and businesses operating in Saudi Arabia. Other nations like China, the U.K., India, and Israel have lower GNPs to their corresponding GDPs. This may indicate these nations are seeing a net overall outflow from the country.

The Bottom Line

Gross national product (GNP) and gross domestic product (GDP) are popular metrics for measuring the productivity of a country's economy. GDP measures productivity within a country's geographical boundaries, and GNP records economic activity by that country's citizens and businesses, regardless of location.