STUDENTS' CORNER - 27

Now, we shall move on to discuss the difference between Gross Domestic Product and Gross National Product.

As we have seen in some detail, the Gross Domestic Product is the total value of the goods and services generated within a country.  Usually, the period taken into account is one year.  The rate of  growth or otherwise of GDP is compared generally annually; but it yields itself for comparison at different segments of time; that is, the rate of growth of GDP can be compared half-yearly ; that is, for the first or the second half of the financial year with that of the previous year.

There are certain uses of GDP.  First of all, GDP is considered as one of the primary indicators of country’s economic performance.  With it, per capita income is calculated.  Later, we will see the important points in connection with GDP, GNP and National Income.  Here, we can say GDP is a measure of local income; income which includes the total value of goods and services produced in the country and provided by both the domestic people and the foreigners within the country.

Another aspect of GDP that is much discussed is GDP’s competency to reflect the standard of living of the people of the country.  The question whether GDP can be taken as an indicator of the standard of living of the people has been much discussed and it is said that most of the economists do not see any direct correlation between GDP and the Standard of living. We will see more of it at an appropriate context.

We will now see the difference between GDP and GNP. We know GDP refers to the total value of the goods and services produced in a country at a given period of time. GNP refers to the total market value of all final goods and services produced by the citizens and the residents of a country.  We know who the citizens of the country.  A citizen enjoys all the legal rights and privileges of a country and is entitled to protection from the country and he in turn owes allegiance to the country. Residents are not citizens and as the word indicates, they just reside. The Tamil people living in the US are residents and the value of their products and services in the US come under GNP for Tamil Nadu but they become GDP for the US. To put the difference in a simple way: GDP gives importance to the place; but, GNP gives importance to the ownership.

At the next level, we have to look into what is called National Income and other related facts.

, GDP does not include services and products that are produced by the nation in other countries. In other words, GDP measures products only produced inside a country’s borders. For products produced abroad, Gross National Product (GNP) is used to determine the income.

GDP measures the overall economic output of a country and also determines the local income of a nation. GNP is based on ownership and includes goods and services produced by enterprises owned by a country's citizens in another country. For example, products produced by the United States in China, will count as GNP in the US, and GDP in China