Gross National Product (GNP)

The gross national product (GNP) is the market value of the goods and services produced in a given period by the domestically owned factors of production of a country. It is an alternative to the gross domestic product (GDP): Both share the same accounting principles, qualities, and limitations.

The difference between the two indicators has to do with the scope of the calculation. The GDP refers to goods and services produced within the country by factors of production owned by residents and nonresidents alike. In contrast, GNP refers to goods and services produced by factors of production owned by residents, whether the production takes place within the country or abroad. For example, the salary of a U.S. national who works in Belgium without being resident in this country will be included in Belgium's GDP but not in its GNP. Conversely, it will be included in U.S. GNP but not in U.S. GDP. Formally, GNP is equal to GDP plus any income (from labor and capital) earned abroad by domestic factors, less income earned within the country by foreign factors.

Ireland is an interesting case: In 2003, its GNP was equal to 79% of its GDP. The difference was due to the high volume of foreign investment in the country, the return on foreign investment being included in GDP, but not in GNP. In 2003, Ireland ranked 4th among OECD countries by per capita GDP (in purchasing power parity terms), and 17th by per capita GNP. That may reflect an ethical problem: the possible manipulation of transfer prices by multinational companies to generate most of their profits in Ireland, whose tax policy is particularly favorable.

Like GDP, GNP may be seen from three equivalent points of view:

• 1.
  Expenditure based: The value of domestic final expenditure on goods and services at market prices (which includes purchases of consumer goods and services by households; gross private domestic investment in structures, equipment, and software; residential investment and change in inventories; and government consumption expenditures and investment), plus the value of exports, less the value of imports.
• 2.
  Income based: All payments made in production, such as wages and other labor costs, interest, rental, depreciation, profit, and taxes paid by companies (less subsidies).
• 3.
  Output based: The sum of the value added by all the production units plus net taxes paid.