Gross national product (GNP) is the market value of all the products and services produced in one year by labour and property supplied by the citizens of a country.
Unlike gross domestic product (GDP), which defines production based on the geographical location of production, GNP indicates production based on location of ownership.
GNP includes income earned by citizens and companies of the particular country who are situated abroad, but does not include income earned by foreigners within the country.
GNP is an economic statistic that is equal to GDP plus any income earned by residents from overseas investments minus income earned within the domestic economy by overseas residents.
GNP Formula
The formula to calculate the components of GNP is:
Y = C + I + G + NX + Z.
GNP = GDP + Net factor income from abroad
That stands for GNP = Consumption + Investment + Government + X (net exports, or imports minus exports) + Z (net income earned by domestic residents from overseas investments – net income earned by foreign residents from domestic investments.)
Example of GNP
If a Japanese multinational produces cars in the UK. This production will be counted towards UK GDP. However, if the Japanese firm sends £50m in profits back to shareholders in Japan. Then this outflow of profit is subtracted from GNP of UK. UK nationals don’t benefit from this profit.
Use of GNP
GNP is the “national income” according to which IMF ranks nations based on PPP or Purchasing Power Parity. [India ranked 3rd after USA, and China] It is indicative of the qualitative as well as quantitative aspect of the economy.
The concept of domestic territory (Economic territory) is different from the geographical or political territory of a country.
Domestic territory of a country includes the following
- Political frontiers of the country including its territorial waters.
- Ships and aircrafts operated by the normal residents of the country between two or more countries for example, Air India’s services between different countries.
- Fishing vessels, oil and natural gas rigs and floating platforms operated by the residents of the country in the international waters or engaged in extraction in areas where the country has exclusive rights of operation.
- Embassies, consulates and military establishments of the country located in other countries, for example, Indian embassy in U.S.A., Japan etc. It excludes all embassies, consulates and military establishments of other countries and offices of international organizations located in India.
Thus, domestic territory may be defined as the political frontiers of the country including its territorial waters, ships, aircrafts, fishing vessels operated by the normal residents of the country, embassies and consulates located abroad etc.