Gross National Income
What Does It Say About a Country?
Definition: 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 those earned abroad. Income is defined as all employee compensation and investment income. This includes even those from foreign sources. Product taxes (minus subsidies) not already counted also fall under the GNI. It does not count income earned by foreigners located in the country though.
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, on the other hand, measures the income of anyone within a country's boundaries, regardless of 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.
Difference Between GNI and GNP
GNI measures income earned, including that from investments, that flows back into the country. Gross national product includes the earnings from all assets owned by residents. It even includes those that doesn'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.
(Source: “Building the Business Case,” Solutions Matrix.)
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 simpler form, here are the formulas to calculate GDP, GNI and GDP.
GDP = C + I + G – X. The components of GDP are personal consumption (C) + business investment (I) + government spending (G) + [exports - imports (X)].
GNI (calculated from GDP)
GDP + (income from citizens and businesses earned abroad) – (income remitted by foreigners living in the country back to their home countries)
GNP (calculated from GDP)
GDP + (income earned on all foreign assets) – (income earned by foreigners in the country)
GNI (calculated from GNP)
GNP + (income spent by foreigners within the country) – (foreign income not remitted by citizens)
Why Are These Differences 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 large 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. (Source: "Definitions and Notes: GNP," CIA World Factbook.)
GNI by Country
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. On one hand, the method works well for goods like McDonald's hamburgers that are sold across the world. On the other hand, it does a poor job of estimating the value of goods not sold in America. Yak carts is one such example. Could it be said that their value is the same as automobiles, the predominant form of U.S. transportation, or to similar animals such as cattle? (Source: “GNI, PPP Method,” TheWorld Bank.) See also What's the Best Way to Compare GDP Between Countries?
GNI per Capita
GNI per capita is a measurement of income divided by the number of people in the country.
It compares the GNI of countries with different population sizes and standards of living.
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 in order to eliminate seasonal fluctuations. (Source: “GNI per Capita,” The World Bank.)
Find Out More About GDP
- What's the Difference Between Real GDP and Nominal GDP?
- What's the Difference Between GDP and the GDP Growth Rate?
- What's the Ideal Growth Rate?
- What's the Current GDP Growth Rate?
- What's a Recession?
- What's a Depression?