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Many textbooks claim that the difference between GDP and GNP is about geography vs citizenship. For example, Colander:

GDP is output produced within a country’s borders; GNP is output produced by a country’s citizens.

So, according to the above, if for all of 2017 through 2020, Hans the German citizen lived in the US and worked for Walmart, then his 2020 wages would count towards 2020 US GDP and German GNP (but not US GNP or German GDP).

But from my reading of the UN System of National Accounts (2008), this seems to be incorrect:

An institutional unit is said to be resident within the economic territory of a country when it maintains a centre of predominant economic interest in that territory, that is, when it engages, or intends to engage, in economic activities or transactions on a significant scale either indefinitely or over a long period of time, usually interpreted as one year.

So, by my reading, Hans should be counted as a US resident in 2020 and his 2020 Walmart wages should instead count towards US GDP.

Am I correct and are the textbooks wrong? (Or have I perhaps misinterpreted them?)


More examples of textbooks making the above claim.

Baumol and Blinder:

There is another concept, called gross national product, which counts the goods and services produced by all Americans, regardless of where they work. For consistency, the outputs produced by foreigners working in the United States are not included in GNP.

Cowen and Tabarrok:

Gross national product (GNP) is very similar to GDP but GNP measures what is produced by the labor and property supplied by U.S. permanent residents wherever in the world that labor or capital is located, rather than what is produced within the U.S. border.

Fischer and Dornbusch:

There is a distinction between GNP and gross domestic product, or GDP. GDP is the value of final goods produced within the country. What is the difference between GNP and GDP? Part of GNP is earned abroad. For instance, the income of an American citizen working in Japan is part of U.S. GNP. But it is not part of U.S. GDP because it is not earned in the United States.

O'Sullivan and Sheffrin:

The distinction between what they produce within their borders, GDP, and what their citizens earn, GNP, is not that important to most countries.

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You are correct: the difference does not depend on citizenship. (And yes, the textbooks are wrong.)

Following the SNA (2008), we have $$\text{GNP}=\text{GDP}+\text{Net Primary Income},$$

where Primary Income involves only transactions that are between a resident and a non-resident.

The crux then is whether "residency" depends on citizenship. The answer is that it doesn't. SNA (2008):

4.10 The residence of each institutional unit is the economic territory with which it has the strongest connection, in other words, its centre of predominant economic interest. ...

4.14 An institutional unit has a centre of predominant economic interest in an economic territory when there exists, within the economic territory, some location, dwelling, place of production, or other premises on which or from which the unit engages and intends to continue engaging, either indefinitely or over a finite but long period of time, in economic activities and transactions on a significant scale. The location need not be fixed so long as it remains within the economic territory. Actual or intended location for one year or more is used as an operational definition; while the choice of one year as a specific period is somewhat arbitrary, it is adopted to avoid uncertainty and facilitate international consistency. ...

26.37 A household is resident in the economic territory in which household members maintain or intend to maintain a dwelling or succession of dwellings treated and used by members of the household as their principal dwelling. If there is uncertainty about which dwelling is the principal dwelling, it is identified from the length of time spent there, rather than other factors such as cost, size, or length of tenure. Being present for one year or more in a territory or intending to do so is sufficient to qualify as having a principal dwelling there.

So yes, in your example, Hans was a US resident in 2020 and his wages from Walmart (also a US resident) count towards US GDP and do not show up in Primary Income or GNP.


See also 7.21:

as both GDP and GNI are obtained by summing over the same set of resident institutional units, there is no justification for labelling one as “domestic” and the other as “national”. Both aggregates refer to the total economy defined as the complete set of resident institutional units or sectors. The difference between them is not one of coverage but the fact that one measures production while the other measures income. Both have an equal claim to be described as domestic or as national. However, as the terms “gross domestic product” and “gross national income” are deeply embedded in economic usage, it is not proposed to change them. Emphasis should be given, however, to the third rather than second letter of the acronym to emphasize the fact that GDP refers to production (output) and GNI to income.

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  • $\begingroup$ Might be worth clarifying this part: “his wages... count towards US GDP and do not show up in... GNP.” They do show up in US GNP, specifically because they don’t show up in net primary income. $\endgroup$ – dismalscience Feb 24 at 14:14
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Residency is a complex definition. For example, the Council for Science and Technology of my country supports many graduate students abroad every year. Those guys stay abroad for periods of 1-5 years, yet statistics compilators still count them as residents of the National economy. Why? Because their economic interests are based at home, not the other country. But there's more to statistics compilation than just that. Typically, the Council for Sci&Tech will provide the statistics office with data on those scholarships. But what do they do with all the folks coming and going in the corporate world? They won't report that, at least not voluntarily. So there are a few rules of thumb that the guys doing the compilation will follow:

  1. Companies working on defined projects abroad are still residents of their home economy. For instance, a construction company from Mexico building a bridge in Guatemala, a project that will take them 3 years, will be recorded as a resident of the Mexican economy;
  2. Employees working for 1 year or less in another country will still be considered residents of their normal country of residence;
  3. People whose residence moved (declared intention of moving and remaining in the new country) will now be considered residents of their new country.
  4. Companies establishing a branch abroad will be recorded as Direct Investors, and the new branch, a resident of that economy where they are located.

Beware: this may or may not coincide with the definitions by fiscal authorities. This is strictly from a statistics compilation viewpoint. Also, these are rather guidelines, but the more information a statistical office has, the better the compilation. This is why offices of different countries should seek to cooperate with others.

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