GNI versus GNP for Measuring Development

Question

In the calculation of the Human Development Index, Gross National Income (GNI) is used rather than GNP.

I've searched around on the internet, but I haven't found a clear explanation of what the precise difference between GNI and GNP is. Wikipedia defines GNI as "total domestic and foreign output claimed by residents of a country" and the GNP as "market value of all the products and services produced in one year by labour and property supplied by the citizens of a country." Just like the income and expenditure approaches to calculating GDP yielding the same result, it seems to me that GNI and GNP should be at least theoretically equal.

What is the difference between GNP and GNI, and why use one over the other for measuring development?

Answer 1

GNP measures production, so is a better measure of how the country is doing in the long term at accumulating fixed capital and developing. Fixed capital has a much higher return than the financial capital that GNI is typically derived from. However, both measures are usually very similar, except for some tax havens such as Ireland that have significantly more GNI than GNP.

Suppose a country consisted of one individual making trillions of dollars on the stock market and boosting GNI without any national product. If they don't own any fixed capital, this would be a very bizarre economy and not really "developed".

On the other hand if a country has lots of production but has a negative GNI because, say, a domestic company issued a massive dividend to overseas investors that year, then the country could still be called "developed" because it has real people and factories and so forth.

Neither of these cases have anything to do with reality of course, they're just examples.