How to Calculate GNP
- GNP = GDP + Net income inflow from abroad – Net income outflow to foreign countries
- GDP = Consumption + Investment + Government Spending + Exports – Imports
An example of an income inflow when calculating the GNP for the U.S. would be an American company that owns a subsidiary in Canada. During the year if that company sends $100m in dividends back to the parent company in the U.S. that would directly increase GNP by $100m. Using a GDP measure that $100m would still count towards Canada's economic value.
An example of an income outflow could be foreign workers in the U.S. that send part of their paychecks to family based in their home country every month. At the end of the year any amounts they have sent home would be deducted from the U.S. GNP calculation and included in that of their home country.
Understandably even approximating so many relatively small transactions is a complex process and has a fair degree of imprecision. As such, comparable to GDP, the final value for GNP is an estimate and even then typically takes months to calculate after the end of a quarter or the end of the year. Actually calculating GNP yourself would be near impossible, so the examples above are for understanding the work prepared by teams of economists rather than an example of how you should proceed.
Relevance of GNPWhen deciding whether or not to use GNP as an economic measure you should consider what the ultimate purpose of the information you need is. What argument are you presenting. What is the point you are trying to make? When considering whether to use GNP versus GDP or another economic measure you always want to ask these questions to ensure your information is the right fit.
GNP is a very useful measure when you are trying to assess the productiveness of the citizens (and companies) of a certain country in terms of their economic impact. The income generated by citizens shouldn't be eliminated from your measure solely because they're income happens to be coming from across a border.
By Jeffrey Glen