GNP: Definition & Formula Video

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  • 0:02 What Is GNP?
  • 0:57 GNP vs GDP
  • 1:49 Formula for GNP
  • 2:32 Lesson Summary
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Lesson Transcript
Instructor: Grant Maynard

Grant is a practicing corporate attorney and serves as an adjunct professor at various universities.

This lesson explores the economic concept known as gross national product, or GNP. We'll discuss the formula for calculating GNP as well as the differences between GNP and the better-known GDP.

What Is GNP?

Before the prevalence of international trade, it was relatively easy to compare the performance of national economies against one another. Japan's economy was a wholly different thing from the United States' economy, for example. But globalization, or the growing integration of business and culture across different nations, has changed all that.

Globalization has made it more difficult to assess the state of a country's economy given vast trade networks. For instance, if a Japanese company builds a plant and makes cars in the United States, which economy benefits more from the activity? Economists have devised a number of tools to help quantify economic health, and GNP (gross national product), is one of those measures.

GNP is a measure of a country's total economic activity. It is similar to GDP (gross domestic product), but with a slight adjustment meant to capture the total income of a country rather than total output. Let's explore exactly what that means.

GNP vs. GDP

Both GNP and GDP are used to measure a nation's economic activity, but they do so in slightly different ways. GDP is a broad figure that measures the value of all goods and services produced within a country's borders, no matter who produces the goods or provides the services. So if a Japanese company builds a plant and makes cars in the United States, the value of the cars would be included in the United States' GDP because production happened in the United States.

GNP, on the other hand, measures economic activity generated by a country's citizens or nationals irrespective of where the goods are produced. Using our same example, the value of cars produced would be included in Japan's GNP because the manufacturer is a Japanese company. As you can see then, the GDP of countries with high levels of foreign investment may be much higher than their GNP.

Formula for GNP

Now that we understand GNP, let's learn how to calculate it.

The formula for GNP is:

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