Gross National Income
What It Says About a Country
Gross national income is a measurement of a country's income. It includes all the income earned by a country's residents and businesses, including any income earned abroad. Income is defined as all employee compensation plus investment profits. It includes earnings from foreign sources.
Difference Between GNI and GDP
GNI measures all income of a country's residents and businesses, regardless of where it's produced.
Gross domestic product measures the income of anyone within a country's boundaries. It doesn't matter who produces it. It includes anything earned by foreigners, including foreign businesses, while they are in the country. GDP measures production while GNI measures income.
GNI equals GDP plus wages, salaries, and property income of the country's residents earned abroad. It also includes net taxes and subsidies receivable from abroad, according to the Organization for Economic Cooperation and Development.
Difference Between GNI and GNP
GNI measures income earned, including income from investments, that flows back into the country.
Gross national product includes the earnings from all assets owned by residents. It even includes earnings that don't flow back into the country. It then omits the earnings of all foreigners living in the country, even if they spend it within the country. GNP only reports how much is earned by the country's citizens and businesses, no matter where it is spent in the world.
The chart below compares what is and isn't included in GDP, GNI, and GNP.
|Income Earned by:||GDP||GNI||GNP|
|Residents in Country||C+I+G+X||C+I+G+X||C+I+G+X|
|Foreigners in Country||Includes||Includes If Spent in Country||Excludes All|
|Residents Out of Country||Excludes||Includes If Remitted Back||Includes All|
|Foreigners Out of Country||Excludes||Excludes||Excludes|
To put things in a simpler form, here are the formulas to calculate GDP, GNI, and GDP.
The components of GDP are personal consumption (C) + business investment (I) + government spending (G) + [exports - imports (X)]:
GDP = C + I + G – X.
GNI is calculated from GDP:
GNI = GDP + [(income from citizens and businesses earned abroad) – (income remitted by foreigners living in the country back to their home countries)].
GNP is calculated from GDP:
GNP = GDP + [(income earned on all foreign assets – income earned by foreigners in the country)].
GNI is calculated from GNP:
GNI = GNP + [(income spent by foreigners within the country) – (foreign income not remitted by citizens)].
Why These Differences Are Important
In many emerging markets, such as Mexico, residents move to other countries where they can earn a better living. They send lots of money back to their families in their home county. This income is enough to drive economic growth. It's counted in GNI and GNP though not in GDP. As a result, comparisons of GDP by country will understate the size of these countries' economies.
GNI by Country
The World Bank provides GNI data for all countries. To compare incomes between nations, it removes the effects of currency exchange rates. It converts everything to the U.S. dollar using purchasing power parity.
The problem with the PPP method, though, is that it converts all goods and services in a country to what it would cost in the United States. The method works well for products like McDonald's hamburgers that are sold across the world. But it does a poor job of estimating the value of goods not sold in America. A yak cart is one such example. Are their values the same as automobiles, the predominant form of U.S. transportation, or to similar animals such as cattle?
Measuring GDP per capita may be the best way to compare GDP between countries. This method calls for dividing a country’s economic output by its population. Nations with much higher populations may not fare as well as those with fewer people.
GNI per Capita
The World Bank provides this data as well. In this case, it converts income to U.S. dollars using the official exchange rate. It then applies the Atlas conversion method to smooth out exchange rate volatility. It then divides the GNI by the country's population to get GNI per capita. This is done using the country's data from the middle of the year to eliminate seasonal fluctuations.