GDP vs. Gross National Income

Attribute	GDP	Gross National Income
Definition	Gross Domestic Product measures the total value of all goods and services produced within a country's borders in a specific time period.	Gross National Income measures the total income earned by a country's residents and businesses, regardless of where the production takes place.
Components	Consumption, investment, government spending, and net exports	GDP + net income from abroad
Calculation	GDP = C + I + G + (X - M)	GNI = GDP + net income from abroad
Scope	Domestic	National
Impact of Foreign Income	Excludes income earned by foreign residents within the country	Includes income earned by country's residents abroad

Definition

Gross Domestic Product (GDP) and Gross National Income (GNI) are both important economic indicators that measure the economic performance of a country. GDP measures the total value of all goods and services produced within a country's borders in a specific period, usually a year. On the other hand, GNI measures the total income earned by a country's residents, including income from abroad, in a specific period. While GDP focuses on production, GNI focuses on income.

Components

GDP is calculated by adding up four main components: consumption, investment, government spending, and net exports (exports minus imports). Consumption represents the total spending by households on goods and services, while investment includes spending on capital goods like machinery and equipment. Government spending includes all government expenditures on goods and services, while net exports represent the difference between exports and imports. GNI, on the other hand, includes GDP plus net income from abroad, which consists of wages, profits, and other income earned by residents from foreign sources.

Measurement

GDP is typically measured using three different approaches: the production approach, the income approach, and the expenditure approach. The production approach calculates GDP by adding up the value of all goods and services produced in the country. The income approach calculates GDP by adding up all incomes earned in the country, including wages, profits, and taxes. The expenditure approach calculates GDP by adding up all spending on goods and services, including consumption, investment, government spending, and net exports. GNI, on the other hand, is calculated by adding up GDP and net income from abroad.

Importance

GDP is often used as a key indicator of a country's economic health and is used to compare the economic performance of different countries. It is also used to measure the standard of living and economic growth of a country. GNI, on the other hand, provides a more accurate picture of a country's income and can be used to measure the distribution of income within a country. GNI is also used to calculate other important economic indicators, such as Gross National Disposable Income (GNDI), which measures the total income available to residents for consumption and saving.

Limitations

While GDP is a useful indicator of economic activity, it has several limitations. For example, GDP does not account for income distribution within a country, so a high GDP per capita does not necessarily mean that all residents are well-off. GDP also does not account for non-market activities, such as household work or volunteer work, which can contribute significantly to a country's well-being. GNI, on the other hand, provides a more accurate measure of a country's income, but it also has limitations. For example, GNI does not account for inequalities in income distribution or differences in the cost of living between countries.

Comparison

Overall, GDP and GNI are both important economic indicators that provide valuable information about a country's economic performance. While GDP focuses on production and is used to measure economic growth and standard of living, GNI focuses on income and provides a more accurate measure of a country's income. Both indicators have their strengths and limitations, and it is important to consider both when analyzing a country's economy. By understanding the differences between GDP and GNI, policymakers and economists can make more informed decisions about economic policy and development.