I know that the GDP (the value of all final goods and services produced within a country during a given period of time) is useful for determining the productivity of a nation, the size of the nation's economy, and the standard of living. The GNP (the value of all final goods and services produced by individuals belonging to a particular nation, both domestic and abroad, during a given period of time), I believe, is used in very similar ways.
Overall, however, it seems that the GDP gives similar information and is easier to calculate than the GNP. That being said, what is the point of calculating the GNP?
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asked Nov 27, 2014 at 18:21
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2$\begingroup$ Mostly for historical reasons. GNP had been used before the 90s. See here for example. In autarky conditions, GNP equals GDP. So before capital and G&S flows intensified, the choice wasn't even an issue. $\endgroup$– Anton TarasenkoNov 27, 2014 at 20:12
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$\begingroup$ Are you in effect asking, "Why don't we stop collecting GNP data?"? $\endgroup$– Steve SNov 27, 2014 at 20:30
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1$\begingroup$ @SteveS I am more asking "Why are we still collecting GNP data?" $\endgroup$– MathematicianNov 28, 2014 at 1:25
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2 Answers
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In 1991, when the Bureau of Economic Analysis made the switch from GNP to GDP as "their primary measure of U.S. production," they indicated the continued importance of GNP this way:
GNP, however, continues to be a useful concept. Because it refers to the income available to U.S. residents as the result of their contribution to production, it is appropriate for analyses related to sources and uses of income. For example, saving rates are normally expressed as a percentage of income, and GNP is the more appropriate measure for this propose. In addition, GNP is better than GDP for analyses that focus on the availability of resources, such as the Nation’s ability to finance expenditures on education.
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$\begingroup$ I suppose it is probably better for forecasting likely tax receipts as well. $\endgroup$ Dec 1, 2014 at 19:51
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As you said, GDP (Gross Domestic Product) measures the market value of all good and services produced in a certain period in a country, either by national or non-resident bodies (firms, non-profit organizations, government companies, households etc.) As an example, two firms producing in US, one owned by Americans and another one by Spanish businessmen, would both contribute to US GDP.
The GNP (Gross National Product) measures the market value of all goods and services produced in a certain period by national bodies, independently of where this production takes place. For instance, the production of the Spanish firm in the US would not form part of the US GNP, but all the value of the production of American-owned firms abroad would be part of US GNP (Note: if the Spanish firm stays for more than a year in the US it would be considered resident).
Why is GNP useful? Because it is a better indicator of the amount of income actually obtained by the citizens of a country in the reference period. Think of American firms producing abroad, their benefits will probably come back to the US in the form of dividends. To clarify, if the shares of a firm producing abroad are held by Americans, then these dividends would form part of US GNI but not GDP. Another important example are migrants remittances, they adds up to the GNI of their country but not to GDP. Although these two sources imply more income for the citizens of a country, they are ignored in the GDP.
Notice, that in most of the countries GNP and GDP figures are very similar. However, in some countries with a high presence of foreign firms, for instance Ireland, GDP is considerably higher than GNP (more than 30%) because most of firms' profits leave the country. Using GDP to measure standards of living could be thus misleading, we would think that Irish are much richer than what they actually are, but more than 30% of the income generated in the country does not stay there.
