Gross National Income (GNI) and Gross Domestic Product (GDP) are both measures of a country’s economic output and welfare, but GNI includes net revenues earned by other nations, while GDP is based on location. The components of GNI and GDP are similar, but GNI includes interest and dividends from foreign nations. The difference in measurement can create a large discrepancy in rankings for some countries.
Gross National Income (GNI) and Gross Domestic Product (GDP) are both indicators of a country’s economic output and welfare, although they have disparities. The main difference between GNI and GDP is their measurement and components. For example, GNI and GDP both consist of the total market value of all goods and services produced in a given country in a given period. Unlike GDP, however, GNI goes a step further to include the net revenues earned by other nations. This net income is derived from the subtraction of profits and income earned overseas from locally owned companies, profits and similar income going overseas from foreign owned companies.
The components of GDP are the totals of household final consumption, business investment, government spending and imports minus exports for a given country. GNI includes the same components as GDP plus others, such as interest and dividends derived from foreign nations. Also, profits earned by foreign companies are subtracted from a nation’s GNI. Therefore, GNI and GDP values can be very different for a given country. In many cases, however, they tend to be neighbors in value due to a balancing effect of income inflows and outflows.
One way to look at the difference between GNI and GDP is that the measurement of GNI is based on ownership, while that of GDP is based on location. For example, if a US-owned company has operations in Japan, its profits from this country will not count against US GDP but against GNI. Conversely, the US company’s goods and services produced in Japan will count towards Japan’s GDP. That is, the US-owned company has operations located in Japan, so its economic output produced within Japan’s borders contributes to the nation’s GDP. On the other hand, the company’s owners receive interest and dividends from the company’s operations in Japan, which count towards US GNI.
GDP and GNI are both used to rank and compare countries’ living standards and performance. As the ways of measuring GNI and GDP are different, for some countries this creates a large discrepancy in the ranking. For example, some countries have many foreign companies located within their borders and don’t have as many locally owned companies located abroad to make up for this. In these countries, the outflow of income can be significantly larger than the corresponding inflow. Therefore, their ranking in terms of GNI and GDP would therefore be different.
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