GDP versus GNP. Which is a better gauge of a country's economy size and prosperity?

Question

Country A's GDP is larger than Country B's GDP. However, Country B's GNP is larger than Country A's GNP. Which country has a stronger economy? Which country's citizens is more likely to enjoy prosperity?

Answer 1

I think the safest answer is “it depends.”

Firstly, the terms “stronger economy” or “enjoy prosperity” are subjective, so I think if you want a stronger answer, you would need to tighten that part of the question up, with more concrete phrasing.

Secondly, we would need to pin down the reasons why GDP and GNP diverge.

Ireland is a well-known example, where GDP is much larger than GNP. This is usually ascribed to multinational corporations funnelling revenue through Ireland to take advantage of low corporate tax rates. In this case, GNP is viewed as being more representative of the state of the Irish economy, since those corporate revenues have very little to do with the Irish economy.

I am unaware of examples where GNP is much larger than GDP, but I believe that it would be easy to create theoretical examples where GNP is telling us very little about domestic economic conditions. (A country with large ownership of foreign assets, where production and income is almost entirely the result of the economic conditions facing those foreign subsidiaries.)

In other words, you need to know exactly what question you want to answer, and see whether GDP or GNP is closer to what answer you need.