GDP vs. GNI

When comparative economic statistics are used to look at the performance of companies two of the key summary figures used are Gross Domestic Product (GDP) and Gross National Income (GNI). While they both work to calculate how well a country is doing economically from year to year, or compared to other countries, the do reflect two very distinct concepts.
This article will discuss the two and explain the differences when looking at GDP vs. GNI.

GDP

GDP is a figure used to determine the total value of production within a country's borders by both its own citizens (and companies) and foreign ones residing there. Typically GDP is calculated as:While the actual calculation of figures like consumption or investment is very complex and can have multiple interpretations as long as the same methodology is used year over year and across countries there is a degree of relevance. The ultimate goal of this is to determine what the strength of the country's economy is based on the production and income that is generated within its borders.

GNI

GNI takes GDP a step further and factors in the ownership and flow of income in and out of the country to consider more than what is simply produced inside a countries borders. Typically GNI is calculated as:With this GNI uses GDP as a starting point and then includes income generated by that country's nationals abroad and removes the income generated by foreigners in that country. So instead of looking at what is generated by a country within its border GNI is trying to calculate the total income generated by that country's citizens. This can be a very useful refinement of GDP as the income and earnings of many countries nationals will flow back to those countries, i.e. a U.S. company owns a Canadian company and the earnings will flow back to and be paid to the U.S. based owners.

GDP vs. GNI

Both GDP and GNI are useful indicators of a countries wealth but it is important to understand the clear distinction between the two. GDP is a measure based on the location of where income is produced, whereas GNI is based on the ownership of the income produced. Many consider GNI to be a better assessment of a countries wealth as in a global economy the wealth of a country can't be ignored just because some is physically located outside of the country.

The usefulness of both measures can be high as long as the distinction above is kept in mind and the correct measure is used for whatever purpose your analysis requires.
By Jeffrey Glen

Copyrighted 2016. Content published with author's permission.

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