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Difference Between GNI and GDP

gdp-growthrateGNI vs GDP

GNI, or Gross National Income, and GDP, or Gross Domestic Product, are economic terms that deal with National income. The GNI and GDP are often considered to be the opposite sides of the same coin. Well, one can see that the GNI and GDP differ in all features.

So, what actually is Gross National Income and Gross Domestic Product? The GDP is said to be the measure of a country’s overall economic output. It is the market value of all services and goods within the borders of a nation. The GNI is the total value that is produced within a country, which comprises of the Gross Domestic Product along with the income obtained from other countries (dividends, interests).

One of the main differences between the two, is that the Gross Domestic Product is based on location, while Gross National Income is based on ownership. It can also be said that GDP is the value produced within a country’s borders, whereas the GNI is the value produced by all the citizens.

Well, it is easier to understand with an example. Suppose a firm in the United States has an establishment in Canada, the profits from the products will not be part of the US Gross Domestic Product, as production has not taken place in another area. However, this would count towards the US Gross National Income, as the firm is owned by US citizens even though it is located in another country.

Gross Domestic Product helps to show the strength of a country’s local income. On the other hand, Gross National Income helps to show the economic strength of the citizens of a country.

Summary:

1. Gross Domestic Product is the value produced within a country’s borders, whereas the Gross national Income is the value produced by all the citizens.

2. GDP is said to be the measure of a country’s overall economic output. The GNI is the total value that is produced within a country, which comprises of the Gross Domestic Product along with the income obtained from other countries (dividends, interests).

3. Gross Domestic Product helps to show the strength of a country’s local income. On the other hand, Gross National Income helps to show the economic strength of the citizens of a country.

4. GNI is based on ownership, and GDP is based on location.


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3 Comments

  1. well i think that GNI is based on ownership (because income is accounted in owner’s home country’s GNP irrelevant of the location of business), and GDP is based on location (because income is accounted in GDP of a country where the business is located, irrelevant of owner’s nationality).

  2. As faris pointed out it would seem like GNI is based on ownership and GDP on location. To me it seems to fit better with what is said in the rest of the text.
    This would also fit better with what is said in for instance Wikipedia (http://en.wikipedia.org/wiki/Gross_domestic_product).
    At a first glance at least it would also explain why for instance Switzerland surpasses USA in GNI but not GDP. If Switzerland has exported more than it has imported it would lead me to guess that it ownes more abroad than what the rest of the world ownes in Switzerland whereas it may be the other way around in USA. This would lead to Switzerland gaining interest abroaid whereas the USA would pay interest and therefore have, ceteris paribus, a lower GNI in comparrisson to its GDP.
    Please correct me if I am wrong, I may be.

  3. GNI also factors in a countries debt. GDP hides the effect of this.

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