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Elaborated Difference Between Gnp And Gdp

945 words - 4 pages

According to Lacey Jim, (2011), Gross Domestic Product (GDP) is the measure economists typically use to indicate the total size or value of economic production in an economy. There is a similar measure called Gross National Product (GNP). That's because until a few decades ago GNP was the measure most often cited as the lead measure in the U.S. to describe the health of the economy. That shifted. Now GDP is generally the preferred measure.So what's the difference? Well, first let's look at the similarities. Both GDP and GNP measure "the market value of all goods and services produced for final sale in an economy". The difference is in how we define "the economy". GDP focuses on domestic production. In other words, it defines a nation's economy in geographical terms. Whatever is actually produced inside the country, regardless of who is doing the producing or who owns the productive capital that produces it. In the case of the U.S., it means whatever is produced within the 50 states. GNP however focuses on the production by nationals. In other words, GNP defines the nation's economy in people or resident terms. It counts whatever is produced by the residents or citizens of a nation regardless of where those people may be doing the producing. In the case of the U.S., this means that GNP measures anything produced by Americans or American-owned capital wherever it may be in the world. (Carson, Carol. 2001)So in practical terms Gilbert, (2010) that it's multinational or transnational corporations where the differences arise. Let's consider the auto industry. If Ford, a U.S. company, produces in cars in Dearborn, MI, then the value of the cars counts toward both GDP and GNP. Similarly, when BMW, a German corporation, builds cars in Germany, it counts towards both German GDP and GNP. But when Ford produces cars in Cologne, Germany, it counts toward U.S. GNP (Ford is American producing in Germany) but not toward US GDP. Instead Ford production in Cologne counts towards German GDP since it is geographically produced in Germany. Likewise, BMW production in Alabama in the States counts toward US GDP and German GNP, but not German GDPNormally the differences between GDP and GNP aren't that economically significant. Wikipedia reports the differences between the GDP and GNP for the U.S. in 2003 - a difference of less than one-half a percent of the total:GDP and GNPGross domestic product (GDP) is defined as "the value of all final goods and services produced in a country in 1 year"Gross National Product (GNP) is defined as "the market value of all goods and services produced in one year by labour and property supplied by the residents of a country."As an example, the table below shows some GDP and GNP, and NNI data for the United States:
National income and output (Billions of dollars)

Period Ending

2003

Gross national product

11,063.3

Net U.S. income receipts from rest of the world

55.2

U.S. income receipts

329.1

U.S. income payments

...

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