Gross National Income

What Does It Say About a Country?

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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: “,” Solutions Matrix.)

Comparison Chart

The chart below compares what is and isn't included in GDP, GNI and GNP.

Income Earned by:GDPGNIGNP
Residents in CountryC+I+G+X C+I+G+XC+I+G+X
Foreigners in CountryIncludesIncludes If Spent in Country Excludes All
Residents Out of CountryExcludesIncludes If Remitted BackIncludes All
Foreigners Out of CountryExcludesExcludesExcludes

Formulas

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: "," CIA World Factbook.)

GNI by Country

The World Bank provides GNI data for all countries. In order to compare incomes between countries, it removes the effects of currency exchange rates.

This is done by converting 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. 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: “,” 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  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: “,” The World Bank.) 

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