The Gross National Product

The Gross National Product

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The Gross National Product (GNP) of a country is defined as the set of goods and services produced by its factors of production and sold in the market during a given period of time, usually one year. It excludes foreigners working in the country and includes nationals working abroad.

The difference between Gross Domestic Product (GDP) and Gross National Product (GNP) comes from the measurement of output that both make: while GDP quantifies the total production carried out in a country, regardless of residency factor production that generates it; the GNP, only takes into account the products or services generated by residents or citizens living abroad of productive factors in the country. For example if a Dutch citizen living in the Netherlands, goes to Spain to give a concert, this service is included in the GDP of Spain and not the Netherlands. By contrast it will be included in the GNP of the Netherlands, his country of residence, but not in that of Spain.

Nowadays the GNP is less used than before due to the globalization process. Now a days all brands buy components from all over the world to produce their final products. From cars to small electronic devices. All have components bought in the international markets, so it makes it very difficult to determine where the final product nationality. That is why the GDP is more used and more reliable to see the real effect of the production processes in the economy.

gross national product us

The Real GNP uses the current prices of the economy, so it gives us what we call the REAL GNP. The real GNP it’s calculated with the current prices of the economy, but it is not useful, due to the effect of the inflation. So to be able to know the real production we would use the year base prices to get the NOMINAL GNP for the current year. By this we eliminate the effect of the inflation.

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