What is the purpose of measuring GNP?

Question

I know that the GDP (the value of all final goods and services produced within a country during a given period of time) is useful for determining the productivity of a nation, the size of the nation's economy, and the standard of living. The GNP (the value of all final goods and services produced by individuals belonging to a particular nation, both domestic and abroad, during a given period of time), I believe, is used in very similar ways. Overall, however, it seems that the GDP gives similar information and is easier to calculate than the GNP. That being said, what is the point of calculating the GNP?

Answer 1

GDP measures the value of goods and services produced by anyone within a country's borders, and it is important because it lets us know whether an economy is expanding or shrinking. When we remove inflation, GDP also allows us to compare how economies are performing against each other. This information is helpful for governments (policy-making) as well as corporations & individuals (investments).

GNP measures the value of goods and services that are only produced by a country's citizens, wherever they may be- - either at home or abroad. GNP gives us a sense of how a nation's individuals are contributing to its economy, regardless of their location.

Here's how this can look in the real world:

Greece has been going through financial troubles, which results in a lower GDP and higher GNP. What does this mean? The Greek citizens are contributing more to the Greek economy by what they're doing abroad than what they're doing at home. Because of the financial turmoil in Greece, there may be far fewer expats and foreign operations being conducted on Greek soil itself, lowering GDP.

Now let's consider India. India is the opposite, with a lower GNP and higher GDP. This means that India is experiencing a net outflow: its overseas citizens and international businesses are generating less income (lower GNP) compared to the income earned by the foreign citizens and businesses operating that are humming right along in India itself (higher GDP).

In answer to your question, the primary value in measuring GNP is to enable economists and policy makers to develop legislation and programs that can begin to address important national challenges like inflation and poverty.