Welcome to the ultimate showdown of economic indicators – GDP vs GNI! If you’ve ever found yourself lost in a sea of acronyms while discussing national income or wondering which metric is truly the kingpin.
GDP (Gross Domestic Product) measures the total economic output within a country’s borders, including goods and services produced by residents and non-residents. While GNI (Gross National Income) measures the total income earned by a country’s residents, both domestically and internationally, including net income from abroad (such as remittances and foreign investments).
GDP vs. GNI
| GDP (Gross Domestic Product) | GNI (Gross National Income) |
|---|---|
| GDP represents the total monetary value of all goods and services produced within a country’s borders during a specific period, regardless of the nationality of the producers. It measures a country’s economic output and productivity. | GNI is the total income earned by a country’s residents, including both domestic and foreign sources. It includes GDP and adds net income from abroad, such as remittances and investments. GNI reflects the economic performance of a country and its citizens, wherever they generate income. |
| It only considers the value of goods and services produced within the country’s borders, regardless of whether the producers are foreign or domestic entities. It does not account for income generated by a country’s residents outside its borders. | It considers all income earned by a country’s residents, whether it is generated domestically or abroad. It accounts for income earned from investments, foreign employment, and other sources outside the country. |
| GDP is not influenced by the nationality of the individuals or companies involved in production. It focuses solely on the location of the economic activity. For instance, foreign-owned companies operating within the country contribute to GDP. | GNI is directly influenced by the nationality of a country’s residents. It takes into account income earned by citizens and companies based on their nationality, regardless of where the income is generated. |
| It does not consider net income from abroad, such as remittances sent by citizens working overseas or income generated by foreign investments. These components are not included in GDP calculations. | It includes net income from abroad, which accounts for money earned by the country’s residents through foreign sources. It adds net income received from abroad and subtracts net income sent abroad. |
| GDP does not directly consider income generated from foreign investments made by the country’s residents outside its borders. The income generated through foreign investments is not part of GDP. | GNI includes income earned through foreign investments made by a country’s residents. It reflects the economic impact of investments made by citizens or companies in foreign countries. |
| It is often used for international comparisons of economic performance and productivity between countries. It provides an understanding of a country’s economic output within its borders. | It is also used for international comparisons, especially when considering the overall economic well-being of a country and its residents, as it accounts for income earned domestically and from foreign sources. |
What is GDP?
Gross domestic product (GDP) is a measure of the market value of all final goods and services produced in a period. It is also the sum of all value added at every stage of production. The main difference between GDP and gross national income (GNI) is that GNI includes net income from assets held abroad.
In simple terms, GDP measures the value of everything produced within a country’s borders, while GNI measures the total income of a country’s citizens, regardless of where they reside. Both are useful measures for understanding the size and health of an economy. However, GNI is generally considered to be a more accurate measure of a country’s standard of living.
What is GNI?
The Gross National Income (GNI) is a measure of the total income earned by a country’s citizens and businesses, including any income earned from overseas investments. It is similar to the Gross Domestic Product (GDP), which measures the total value of all goods and services produced within a country’s borders.
GNI includes both domestic and foreign sources of income, while GDP only includes domestically-produced goods and services. In addition, GNI includes all forms of income (wages, interest, profits, etc.), while GDP only includes final goods and services (i.e. those that are purchased by consumers).
GNI is a useful measure for comparing the economic well-being of different countries. It is also helpful in assessing a country’s ability to pay its debts and meet its financial obligations.
Similarities between GDP and GNI
- Economic Performance: Both GDP and GNI are indicators used to assess the economic performance of a country.
- Measured in Monetary Terms: Both GDP and GNI are expressed in monetary units, such as the country’s currency.
- National Level Metrics: Both metrics provide an overview of the economic activity at the national level.
- Standard of Living: They can be used to evaluate the standard of living and economic well-being of a nation’s residents.
- Used for Comparison: GDP and GNI are used to compare the economic performance of different countries and track changes over time.
How are GDP and GNI used in economics?
GDP is defined as the total value of all final goods and services produced within a country in a given period of time (usually one year). This includes both production by domestic firms and companies, as well as that undertaken by foreign firms operating within the country’s borders.
GNI captures all income earned by a country’s residents regardless of where the production takes place. So if a resident of Country A owns a factory in Country B, the value of the output from that factory will be included in Country A’s GNI but not its GDP.
One key implication of this is that GDP will always be equal to or greater than GNI. This is because GDP includes all production within a country’s borders while GNI only includes production attributable to its residents. In practice, however, the two measures are usually very similar since most countries have a high level of ‘economic integration’ – that is, their residents are highly mobile and earn a significant proportion of their income from abroad.
Key differences between GDP and GNI
- GDP represents the economic production and expenditure within a country but does not consider the distribution of income among residents or the impact of international economic activities on residents’ welfare. While GNI reflects the income earned by a country’s residents, providing a better indication of the economic welfare and living standards of its citizens.
- GDP includes economic activities within the country’s borders, regardless of whether the production is done by residents or non-residents. GNI accounts for the income earned by the country’s residents from economic activities outside the country’s borders.
- GDP (Gross Domestic Product) measures the total economic output within a country’s borders, regardless of whether the production is done by residents or non-residents. While GNI (Gross National Income) measures the total income earned by a country’s residents, both domestically and internationally, including net income from abroad (such as remittances and foreign investments).
- Difference between Deflation and Disinflation
- Difference between Tariff and Non-Tariff Barriers
- Difference between Income and Substitution Effect
Conclusion
GDP measures the total economic output within a country’s borders, GNI goes beyond by considering income earned domestically and internationally by its residents. GNI accounts for net factor income from abroad, providing a more comprehensive understanding of the economic welfare of a nation’s citizens. Both metrics serve unique purposes, and together, they offer a well-rounded view of a country’s economic health and its citizens’ living standards.
