What is the difference between GNP and GDP? - Gross National Product versus Gross Domestic Product
GDP or gross domestic product is one way of counting the total output of an economy. Gross National Product, or GNP, is another way. The indicators are similar but not the same and are often confused.
GDP is the sum value of all goods and services produced WITHIN a countries borders. This production includes production by foreigners in a country. If for example a farmer hires mexican workers to produce goods, their production would be in the GDP number.
GNP expands this definition in that it is the sum value of all goods and services produced by permanent residents of a country regardless of their location. If an american citizen is in Mexico producing furniture to bring into the US then his production would be in the GNP number. In other words GNP includes production by citizens that are currently residing out of the country.
The important distinction between GDP and GNP is in the counting of production by foreigners in a country and by nationals outside of a country. For the GDP of a particular country, production by foreigners in the boundaries of that country is counted and production by nationals outside of that country is not counted.
For GNP, production by foreigners within a particular country is not counted and production by nationals outside of that country is counted.
To summarize this issue and make it a little easier to remember, GDP is the value of goods and services produced within the boundaries of a country and GNP is the value of goods and services produced by all the citizens of a country where ever they may be.
These indicators are important in that they are used to measure whether or not an economy is in a period of expansion or recession.
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