GDP and GNI are both measures of a country’s economic performance, but they differ in how they calculate a country’s income and output.
What Is GDP?
GDP (Gross Domestic Product) is the total value of goods and services produced within a country’s borders during a specific period, typically a year. GDP measures the economic activity generated by residents and non-residents within a country’s geographic borders. It includes all final goods and services produced within the country, regardless of the nationality of those producing them.
What Is GNI?
GNI (Gross National Income), on the other hand, is the total income earned by a country’s residents, both domestically and abroad, during a specific period, typically a year. It measures the income generated by the factors of production (such as labor and capital) owned by a country’s residents. GNI includes income earned by a country’s residents from investments and work done abroad, but it excludes income earned by non-residents within the country.
let’s consider an example to better understand the difference between GDP and GNI.
Suppose a company called XYZ, which is headquartered in the United States, operates in three countries: the United States, Canada, and Mexico. In the United States, the company generates $1 million in revenue, in Canada it generates $500,000, and in Mexico it generates $250,000. The company has 10 employees in the United States who earn an average salary of $50,000, and 5 employees in Canada and Mexico who earn an average salary of $25,000.
Based on this information, we can calculate the GDP and GNI for the United States as follows:
- GDP: The total value of goods and services produced within the United States is $1 million. Therefore, the GDP of the United States is $1 million.
- GNI: The income generated by residents of the United States is the sum of the income earned by the company’s employees and the income earned from investments abroad. The income earned by the company’s employees in the United States is $500,000 (10 employees * $50,000 salary). The income earned by the company’s employees in Canada and Mexico is $125,000 (5 employees * $25,000 salary * 2 countries). Therefore, the total income earned by residents of the United States is $625,000 ($500,000 + $125,000).
In this example, the GDP of the United States is $1 million, while the GNI is $625,000.