## What Is GNP?

Gross national product (GNP) is the sum of all domestic and foreign output generated by citizens of a given country. It can be measured by spending or by income. GNP includes activities by citizens and companies abroad, but it excludes activities by foreigners within the country.

## GDP vs. GNP

Gross domestic product (GDP) is another common metric that’s used to measure the economic activity of a country. The main difference is that GDP is limited to activity within a country’s borders. The simplest way to understand the difference between GDP and GNP is with the following breakdown:

## How to Calculate GNP

Gross national product measures the total value of all goods and services produced by a country's residents, regardless of production location.

### GNP Formula

The GNP formula consists of gross domestic product plus income earned by foreign residents living abroad (minus domestic income generated by non-residents).

## Example of GNP

Assume that Country ABC spends a total of \$100 million on consumption, \$75 million on investments, and \$200 million on government expenditure. Additionally, the country spends \$50 million on imports and sells \$25 million of exports.

Country ABC also has multiple citizens and businesses in foreign countries which generate another \$150 million in income. The foreign businesses that operate within the country earn \$50 million (which is sent back to their home countries).

### What Is Included in GNP?

Using the full form of GNP (above), we can calculate Country ABC’s GNP as follows:

GNP = C + I + G + X + Z

Where:

Consumption = \$100 million

Investments = \$75 million

Government expenditure = \$200 million

X [Net Exports (Value of exports - value of imports)] = -\$25 million

Z [Net Income (Net income inflows from abroad - net income outflows)] = \$100 million

GNP = 100m + 75m + 200m + -25m + 100m = \$450 million

Therefore, we can conclude that Country ABC’s GNP is \$450 million.

## What Is GNP Per Capita?

GNP per capita reflects a country’s average productivity per person. It is calculated by dividing a country's GNP by its population. This metric is useful for country-to-country comparisons since it reflects the economic usefulness of a country relative to its population.

Factors like population size, productivity, and resources can affect overall GNP, so putting it into “per capita” terms allows for a more accurate comparison between countries.

### GNP Per Capita Formula

To calculate GNP per capita, the formula is extremely straightforward:

GNP Per Capita = GNP/Population

## Example of GNP Per Capita

At the end of 2019, the United States’ GNP was \$21.85 trillion and its population was 329.45 million. Using the formula above, we can calculate the GNP per capita for 2019:

Therefore, we can conclude that the 2019 US GNP per capita was \$66,322.66.

## Why Is the Concept of GNP Important?

Unlike GDP (which focuses on the output created within the borders of a country), GNP measures the output generated by its citizens, regardless of their location. Since residents currently have greater opportunities to earn money from both domestic and foreign sources, GNP is a more accurate indicator of average productivity.

However, the two measures are often used together. A large gap between GDP and GNP indicates significant involvement in international trade and finance – or that a large proportion of citizens live and work abroad. A small gap likely indicates that most output is generated within the country’s borders.