- Posted on February 18, 2008
Q: What is the difference between GDP and GNP?
A: GDP is the market value of everything produced within a country; GNP is the value of what’s produced by a country’s residents, no matter where they live.
What is the difference between GDP and GNP, and which is more important in evaluating how healthy our economy is?
To explain further: GDP (gross domestic product) is, as we say on our FactCheckED.org site, "the total market value of goods and services produced within the borders of a country,” regardless of the nationality of those who produce them. GNP (gross national product) is the total market value of goods and services produced by the residents of a country, even if they’re living abroad. So if a U.S. resident earns money from an investment overseas, that value would be included in GNP (but not GDP). And the value of goods produced by foreign-owned businesses on U.S. land would be part of GDP (but not the other measure).
As for which
is the better indicator of economic health, GDP is the primary measure used by the U.S. Department of Commerce’s Bureau of Economic Analysis. The BEA says that GDP "refers to production taking place in the United States. It is, therefore, the appropriate measure for much of the short-term monitoring and analysis of the U.S. economy." Prior to 1991, however, the BEA used GNP as its primary measure. When it made the switch, the BEA noted that GDP was already being used by "virtually all other countries," so making comparisons between the U.S. and other nations would be easier. GDP is also consistent with other economic indicators, such as employment.
The BEA continues to provide GNP figures, and it says the measure is particularly useful in looking at topics such as income of U.S. residents and how income is used. There has not been a large difference between the two measures in this country, but in other nations, such as those with a high number of foreign investments, the GDP will be notably higher than GNP.