What Is the Difference between GNI and GDP?
Gross national income (GNI) and gross domestic product (GDP) are both measures of a country's economic output and well-being, though they have their disparities. The main difference between GNI and GDP is their measurement and components. For instance, GNI and GDP both consist of the total market value of all goods and services produced in a particular country in a given period. Unlike GDP, however, GNI goes a step further to include the net income obtained from other nations. This net income is derived by subtracting profits and income earned overseas, by locally owned firms, from similar profits and income that go abroad from foreign-owned firms.
The components of GDP are the totals of final household consumption, business investment, government spending, and imports minus exports for a given country. GNI is comprised of the same components as GDP in addition to others, such as interest and dividends derived from foreign nations. Moreover, profits earned by foreign firms are subtracted from a nation's GNI. Thus, GNI and GDP values may be very different for a particular country. In many cases, however, they tend to be close in value due to a balancing effect of the inflows and outflows of income.
One way to look at the difference between GNI and GDP is that the measurement of GNI is based on ownership, whereas that of GDP is based on location. For example, if a US-owned corporation has operations in Japan, then its profits from this country will not count toward the US GDP but toward the GNI. Conversely, the US corporation's goods and services produced in Japan will count toward Japan's GDP. That is, the US-owned corporation has operations located in Japan, so its economic output produced within Japan's borders contributes to the nation's GDP. On the other hand, the owners of the corporation receive interest and dividends from the corporation's activities in Japan, which count toward the US GNI.
GDP and GNI are both used to rank and compare the standard of living and performance of countries. Since the ways of measuring GNI and GDP is different, for some countries this creates a big discrepancy in ranking. For example, some countries have many foreign firms located within their borders, and they do not have as many locally owned firms located overseas to offset this. In these countries, the outflow of income may be significantly greater than the corresponding inflow. Therefore, their ranking in terms of GNI and GDP would accordingly be different.
@NathanG - Yes, but let’s not forget that it works both ways. For example, there are many foreign firms that have operations in the United States.
Take the automotive industry as an example. Toyota and Honda have established plants in the United States. These plants employ U.S. workers and contribute towards our GDP; both of these things are good for our economy.
My only beef is that I think there are more U.S. firms operating overseas than vice-versa, and I think the main reason for this is that foreign nations offer a cheaper labor force, unfortunately.
@nony - Let’s talk about the article’s example of a U.S. corporation operating overseas. That corporation’s output contributes toward the foreign nation’s GDP, not our own. I think you have to ask yourself whether multinational corporations are good for us in the long term or whether they just drain away our resources.
Not only are they taking jobs away, but they are affecting our economic output. Sure, we get some GNI from the foreign operation, but as you point out, GNI is not a big predictor of economic health.
@SkyWhisperer - I’d say the main reason that you hear about GDP and not GNI is that GDP is more relevant for our own economy’s health. With GDP we’re looking at how productive we are as a nation. How much stuff are we putting out there on an annual basis?
With GNI, we’re looking at inflows of income from other nations and it doesn’t really tell us how we’re doing within our borders. The key to economic health is continually increasing our GDP.
Since GNI may include interest income and other inflows that don’t result from our direct economic activity, I don’t know that it would tell you a whole lot.
I think I understand the differences between GNI and GDP. What I don’t understand is why in the news we always hear about GDP and not GNI?
It appears that these numbers are similar in many respects. Personally, I’d be interested in knowing what our actual GNI numbers were, in the same way that I am interested in knowing my own net income.
We could track the numbers on an annual basis and see if the nation’s income is improving so to speak, or if it’s in decline. I also think it would be instructive to study if our GDP were increasing but our GNI were declining, assuming such a thing is possible.
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