The upcoming discussion will update you about the difference between Gross Domestic Product (GDP) and Gross National income (GNP).
Gross domestic product (GDP) measures the total income of everyone in the economy.
Gross domestic product (GDP) is the total income earned domestically. It includes income earned by foreigners domestically, but it does not include incomes earned by residents abroad.
Gross national income (GNP) is the total income earned by nationals. It includes the income that nationals earn abroad, but it does not include the income earned within a country by foreigners.
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These two measures of income differ because a person can earn income and reside in different countries.
Several examples given below will explain the difference between GDP and GNP. Suppose an Indian resident comes temporarily to U.K. to work. The income he earned in U.K. is part of U.K. GDP because it is earned in U.K. But the income is not part of U.K. GNP because the worker is not a U.K. national. Similarly, if a U.K. resident works in India, his income is part of U.K. GNP, but it is not part of U.K. GDP.
For example, suppose Japanese resident owns an apartment in London. The rent he earns is part of U.K. GDP because this income is earned in U.K. But the rent is not part of U.K. GDP because the landlord is not a U.K. national. Similarly, if a U.K. resident owns a factory in India, the profit he makes is part of U.K. GNP, but it is not part of U.K. GDP.
For most purposes, the distinction between GDP and GNP is not crucial, because most people earn most of their income in their home country, GDP and GNP move closely together. U.K. policymakers have used both GNP and GDP as the primary measure of the country’s income.