gross national product (GNP)

DEFINITION: The phrase “gross national product” (GNP) refers to the total value of all the products and services produced by a particular country over a specified period of time.

To calculate a country’s GNP, one first calculates the estimated sum of all the country’s personal consumption and governmental expenditures, private domestic investment, net exports, and income earned by residents from foreign investments.

(Note that “net exports” refers to the value of a country’s exports of goods and services less the value of its imports.)

Next, one subtracts from this number the income earned by foreign residents. This number is the GNP.

ETYMOLOGY: The phrase “gross national product” was introduced in 1949.

In its economic sense, the English word “gross” means the economic value of something, such as the price of a good or service, or an income, that does not take account of the costs involved in generating the said good, service, or income. The figure obtained by subtracting such costs from the original value is called the “net” amount. In the sense of the contrary of “net,” “gross” is attested from the late sixteenth century.

The English adjective “gross” itself derives, via Middle English, from Middle French  gros and, ultimately, Latin grossus, meaning “obvious,” “big,” or “bulky.”

The English adjective “national” is attested from around 1600. The associated noun “nation” is derived from Middle English nacioun, Middle French nation, and, ultimately, Latin nātio, nātionis (“birth,” “race,” “nation”), which in turn is derived from the past participle nātus of the deponent verb nascor, nasci, meaning “to be born.”

The English noun “product” is attested from the fifteenth century. In the general sense (as opposed to the mathematical sense), it derives directly from the past participle prōductum of the Latin verb prōdūco, prōdūcere, meaning “to bring forward,” “to advance,” “to promote,” or “to produce.”

USAGE: The concept of the GNP is closely connected to another crucial economic measure known as the “gross domestic product” (GDP), which considers all output produced within a country’s borders, regardless of the ownership of the means of production.

GNP differs from the GDP by adding residents’ investment income from overseas investments and deducting foreign residents’ investment income earned within the country.

The GNP metric aims to quantify the overall monetary value of the output produced by a country’s residents. For this reason, it begins with the value of the GDP—that is, all the output produced within the country’s borders.

Then, it adds the value of any output generated outside the country’s borders by individuals residing inside its borders and subtracts any output generated inside the country’s borders by individuals residing outside its borders. The resulting figure is the country’s GNP.

It is important to note that, to prevent double counting, the calculation of the GNP excludes the value of intermediate goods and services, because their value is already included in the calculation of final goods and services.

Until 1991, the US relied upon the GNP as its primary indicator of economic activity. After that date, it used the GDP figure.

Why did it make this switch? For two main reasons:

First, the GDP metric dovetails better with other US economic data relevant to policymakers, such as indices of (un)employment and industrial production. For these purposes, the GDP concept is a superior indicator because it measures all productive activities within the US, apart from the place of residence of the economic actors.

Second, the shift from the GNP metric to the GDP was made to facilitate international comparisons, since at the time most other countries employed the GDP concept.