Revision: GDP and GNP

Sometimes exam questions provide data on a country’s gross national income rather than their gross domestic product. This revision note provides a brief explanation of the difference between the two.

Gross National Product (GNP) measures the final value of output or expenditure by UK owned factors of production whether they are located in the UK or overseas.

In contrast, Gross Domestic Product (GDP) is concerned only with the incomes generated within the geographical boundaries of the country. Fr example the value of the output produced by Toyota and Deutsche Telecom in the UK counts towards our GDP but some of the profits made by overseas companies with production plants here in the UK are sent back to their country of origin – adding to their GNP.

GNP = GDP + Net property income from abroad (NPIA)

NPIA is the net balance of interest, profits and dividends (IPD) coming into the UK from our assets owned overseas matched against the flow of profits and other income from foreign owned assets located within the UK. There has been an increasing flow of direct investment into and out of the UK. Many foreign firms have set up production plants here whilst UK firms have expanded their operations overseas and become multinational organisations. In recent years, the figure for net property income for the UK has been positive meaning that our GNP is above the figure for GDP. For other countries who have been net recipients of overseas investment (a good example is Ireland) their GDP is higher than their GNP.

For the UK in 2008 there was a surplus of £33bn in net investment income. The flow of income from our external assets is now providing a major boost to the current account of the balance of payments.

A full set of AS macro revision notes is available here and our AS economics revision presentations can be found here