Gross national product

Definition

Gross national product (GNP) is a macroeconomic measure of the total value of all goods and services produced by the residents of a country, including both domestic and foreign production, within a specific time period, typically a year.

What is the gross national product?

GNP measures the total economic output generated by the citizens and businesses of a country, regardless of where the production occurs. It includes the value of goods and services produced domestically, as well as the income earned by citizens and businesses from their investments and activities abroad.

GNP consists of several components, including:

• Gross domestic product (GDP): The value of all goods and services produced within the borders of a country, regardless of the nationality of the producers.
• Net foreign income: The difference between income earned by a country’s residents from investments and activities abroad and income earned by foreign residents from investments and activities within the country.

GNP can be calculated using the following formula:

GNP = GDP + Net foreign income

Changes in GNP over time can indicate trends in economic growth, development, and prosperity.

Like any economic indicator, GNP has limitations. It may not fully capture the distribution of income within a country, as it focuses on aggregate output rather than individual welfare. Additionally, GNP does not account for factors such as environmental sustainability, social welfare, or income inequality, which are important considerations for assessing overall well-being and development.

Example of gross national product

Let’s consider a hypothetical country called “Econland.” In a given year, Econland produces goods and services worth R10 billion within its borders. Additionally, its citizens and businesses earn R2 billion from investments and activities abroad, while foreign residents earn R1 billion from investments and activities within Econland.

To calculate Econland’s gross national product we use the formula above:

GNP = R10 billion (GDP) + (R2 billion – R1 billion) (Net foreign income)

GNP = R10 billion + R1 billion = R11 billion

In this example, Econland’s gross national product is R11 billion. This represents the total value of goods and services produced by Econland’s residents.