What is the difference between GDP and GNP? Gross Domestic Product versus Gross National Product

GDP or Gross Domestic Product is one way of calculating the total output of an economy. Gross National Product, or GNP, is another way. Both represent the size and strength of a nations economy.  However, they are not exactly the same and are often confused.

GDP (gross domestic product) is the sum value of all goods and services produced WITHIN a countries borders.  This production also includes production by foreigners in a country.  If a Japanese company produces cars in the US then that production would be part of US GDP.  If an American company produces cars in Mexico that number would not be in GDP.

GNP (gross national product) expands this definition in that it is the sum value of all goods and services produced by all permanent residents of a country regardless of their location. If an American citizen is in Brazil producing furniture to bring into the US then his production would be in the GNP number. In other words GNP includes production by citizens that are currently residing out of the country.  However, GNP would not include the cars that a Japanese company made in the US.

Think of it as GDP is what a countries landmass produces and GNP is that all the citizens of that country produce.

As an example, China would count production by an American company in China in its GDP.  But it would not count production of a Chinese company in America.  For GNP it would not count the American company in China but would count the Chinese company in America.

To summarize this issue and make it a little easier to remember, GDP is the value of goods and services produced within the boundaries of a country and GNP is the value of goods and services produced by all the citizens of a country where ever they may be.

These economic indicators are very useful in that they are used to measure whether or not an economy is in a period of expansion or recession.