What Does Gross National Income Say About a Country? about:reader?url=https://www.thebalance.com/gross-national-income-40...

thebalance.com

What Does Gross National Income

Say About a Country?
By Kimberly Amadeo

Definition: Gross National Income (GNI) is a measurement of a

country's income. It includes all the income earned by a country's
residents and businesses, even if it's made abroad. Income is
defined as all employee compensation and investment income,
including those from foreign sources. It includes product taxes
(minus subsidies) not already counted. It does not count income
earned by foreigners located in the country.

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 (GDP)
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.

The components of GDP are personal consumption (C) + business

investment (I) + government spending (G)+ exports - imports (X).
GNI = GDP + income from citizens and businesses earned abroad -
income earned by foreigners living in the country paid back to their

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native land.

Difference Between GNI and GNP

GNI measures income earned, including that from investments,

that flows back into the country. GNP (Gross National Product)
includes the earnings from all assets owned by residents, even if it
doesn't flow back into the country.

Similarly, it 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 formula is GNP = GDP +
income earned on all foreign assets - income of foreigners living in
the country.

(Source: Building the Business Case, Solutions Matrix)

Income Earned by: GDP GNI GNP

Residents in
C+I+G+X C+I+G+X C+I+G+X
Country
Foreigners in Includes If Spent in Excludes
Includes
Country Country All
Residents Out of Includes If Remitted Includes
Excludes
Country Back All
Foreigners Out of
Excludes Excludes Excludes
Country

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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 at home. That income large enough
to drive economic growth. It's counted in GNI and GNP. However, it
isn't counted in GDP. As a result, the economic power of these
economies is understated. (Source: CIA World
Factbook, Definitions and Notes: GNP)

GNI by Country

The World Bank provides GNI data for all countries. To compare
incomes between countries, it removes the effects of
currency exchange rates. It converts everything to the U.S.
dollar using Purchasing Power Parity (PPP). That converts all goods
and services in a country to what it would cost in the United States.
That method works well for McDonald's hamburgers, which is sold
everywhere. It's a little harder to estimate the value of things not
sold in America, such as yak carts.

(Source: GNI, PPP Method, World Bank.)

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

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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. It uses the country's as of the middle of the year to
eliminate seasonal fluctuations. (Source: GNI per Capita, World
Bank.)

Find Out More About GDP

What Is GDP?

What's the Difference Between Real GDP and Nominal GDP?

What Are the Components of GDP?

What's the Best Way to Compare GDP Between Countries?

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