National Income, GDP & GNP

By Prof. Sunny Mondal

 National Income
• To simply understand what National Income is, it can be
represented as –
• National Income defines a country's wealth. This income depicts
the value of goods and services which are produced by an
economy. This gives effect to the net result of all the economic
activities performed in the country.
• Imagine how you would define a country’s wealth without any
economic term?
• In that case, there would be no accountability and responsibility
linked with the production in the country. The resources would go
uncalculated and there would be a vague economic atmosphere.
• Thus, let us indulge in this study which talks about National
Income. 
 National Income
• National income is the sum total of the value of all the goods and
services manufactured by the residents of the country, in a year.,
within its domestic boundaries or outside. It is the net amount of
income of the citizens by production in a year.
• To be more precise, national income is the accumulated money
value of all final goods and services produced in a country during
one financial year. Computation of National Income is very vital as it
indicates the overall health of our economy for that particular year.
• The aggregate economic performance of a nation is calculated with
the help of National income data. The basic purpose of national
income is to throw light on aggregate output and income and
provide a basis for the government to formulate its policy,
programs, to maximize the national welfare of the people. Central
Statistical Organization calculates the national income in India.
 Traditional Definition
• According to Marshall: “The labor and capital
of a country acting on its natural resources
produce annually a certain net aggregate of
commodities, material and immaterial
including services of all kinds. This is the true
net annual income or revenue of the country
or national dividend.”
 Modern Definition

GDP
National
Income
GNP
 GDP
• Gross Domestic Product, abbreviated as GDP, is the
aggregate value of goods and services produced in a
country. GDP is calculated over regular time
intervals, such as a quarter or a year. GDP as an
economic indicator is used worldwide to measure
the growth of countries economy.
• Goods are valued at their market prices, so:
– All goods measured in the same units (e.g., dollars in the
U.S.)
– Things without exact market value are excluded.
• Constituents of GDP
– Wages and salaries
– Rent
– Interest
– Undistributed profits
– Mixed-income
– Direct taxes
– Dividend
– Depreciation

• The Formula for Calculation of GDP

• GDP = consumption + investment + government spending + exports -
imports.
 GNP
• Gross National Product (GNP) is an estimated
value of all goods and services produced by a
country’s residents and businesses. GNP does
not include the services used to produce
manufactured goods because its value is
included in the price of the finished product. It
also includes net income arising in a country
from abroad.
• Components of GNP
– Consumer goods and services
– Gross private domestic income
– Goods produced or services rendered
– Income arising from abroad.

• Formula to Calculate GNP

• GNP = GDP + NR (Net income from assets abroad or Net
Income Receipts) - NP (Net payment outflow to foreign
assets)
 Importance of National Income
• Setting Economic Policy
– National Income indicates the status of the economy and can give a clear picture of the
country’s economic growth. National Income statistics can help economists in formulating
economic policies for economic development.
• Inflation and Deflationary Gaps
– For timely anti-inflationary and deflationary policies, we need aggregate data of national
income. If expenditure increases from the total output, it shows inflammatory gaps and vice
versa.
• Budget Preparation
– The budget of the country is highly dependent on the net national income and its concepts.
The Government formulates the yearly budget with the help of national income statistics in
order to avoid any cynical policies.
• Standard of Living
– National income data assists the government in comparing the standard of living amongst
countries and people living in the same country at different times.
• Defense and Development
– National income estimates help us to bifurcate the national product between defense and
development purposes of the country. From such figures, we can easily know, how much can
be set aside for the defense budget.
 Methods for National Income
• There are four methods of measuring national income. The type of method to be used
depends on the availability of data in a country and the purpose which is attempted for.
• Income Method
– In this method, we add net income payments received by all citizens of a country in a particular year.
Net incomes that result in all the factors of production like net rents, wages, interest, and profits are
all added together, but income received in the form of transfer payments are omitted.
• Product Method
– According to this method, the aggregate value of final goods and services produced in a country
during a financial year is computed at market prices. To find out GNP, the data of all the productive
activities-agricultural products, Minerals, Industrial products, the contributions to production made
by transport, insurance, communication, lawyers, doctors, teachers. Etc. are accumulated and
assessed.
• Expenditure Method
– The total expenditure by the society in a financial year is summed up together and includes personal
consumption expenditure, net domestic investment, government expenditure on goods and
services, and net foreign investment. This concept is backed by the assumption that national income
is equal to national expenditure.
• Value Added Method
– The distinction between the value of material outputs and material inputs at every stage of
production is Value added.
 GDP v/s GNP
• The Gross Domestic Product and the Gross National Product are
the two most widely used measures in a country’s calculation of
aggregate economic unit.

• GDP is the measure of the value of goods and services that are
being produced within a country's borders, by the citizens and
the non-citizens. While GNP determines the value of goods and
services that are being produced by the country's citizens in the
domestic and abroad spectrum. GDP is popularly used by the
global economies at large. While, the United States eliminated
the use of GNP in the year 1991, thereby adopting GDP as the
measure to compare their economy with other economies.
 GDP v/s GNP
• When Is GNP More Useful Than GDP?
– Gross National Product, or Gross National Income, records the net income from
foreign sources owned by a country's citizens. This metric may be useful to scholars
measuring the effect of overseas businesses or remote workers on a country's
economy.
• What Is the Difference Between GNP and GNI?
– The 1993 System of National Accounts replaced the term "Gross National Product,"
or GNP, with the new term "Gross National Income," or GNI. Both represent a
country's domestic output plus net income from the businesses or labor of a
country's citizens abroad.
• Is GDP or GNP Better?
– While there is no objective basis for saying that one metric is better than the other,
Gross Domestic Product is the most popular metric for the overall productivity of a
country's economy. GNP was formerly the default measure for a country's
economic production but it fell out of favor by the 1990s.
 GDP and GNP Figures for Select Countries

 Country  GDP GNP  GNP/GDP (%)

United States   20,953  21,287  101.6

United Kingdom  2,760  2,723  98.7

China  14,722  14,618  99.3

Israel  407  402.9  98.9

India  2,660  2,635 99.1 

Greece  188.8  188.0  99.6

Saudi Arabia 700.1 715.6 102.2

Hong Kong 346.6 365.7 105.6

 GDP v/s GNP
• For instance, many American businesses, entrepreneurs, service providers, and individuals who
operate across the globe have helped the nation secure a positive net inflow from overseas
economic activities and assets. This bumps up U.S. GNP, making it higher than the GDP of the
U.S. for the year 2021.
• Saudi Arabia is another instance of a country where GNP is higher than GDP. The Kingdom is a
major oil exporter with enterprises and businesses spread around the globe. The income from
these enterprises tends to be higher than the income lost due to foreign citizens and businesses
operating in Saudi Arabia.
• Other nations like China, the U.K., India, and Israel have lower GNP compared to corresponding
GDP figures. This indicates these nations are seeing a net overall outflow from the country.
• Citizens and businesses of these countries operating overseas are generating lesser income
compared to the income generated by the foreign citizens and businesses operating in these
countries.
• The percentage figures in the table above (GNP/GDP-%), which represents GNP as a percentage
of GDP, indicate that the absolute difference between the two figures is usually confined within
a range of plus or minus 2%. Hong Kong is a notable exception to this rule: as a highly export-
oriented economy, many of the city's business operations are located overseas.
 Rank 1 – USA
• GDP – Nominal: $20.89 trillion
• GDP per Capita: $63,413
• GDP – Purchasing Power Parity (PPP): $20.89 trillion
• A number of factors contribute to the success of the United States. An
entrepreneurial environment that encourages hard work and long hours
certainly helps. But decentralized government, advanced research
universities, and favorable regulatory environments also contribute. The
United States will likely always be in the top countries by GDP in the world. 
• The United States has a relatively open economy, facilitating flexible
business investment and foreign direct investment in the country. It is the
world’s dominant geopolitical power and is able to maintain a large external
national debt as the producer of the world’s primary reserve currency.
• The U.S. economy is at the forefront of technology in many industries, but it
faces rising threats in the form of economic inequality, rising healthcare and
social safety net costs, and deteriorating infrastructure.
 Rank 2 - China
• GDP – Nominal: $14.72 trillion
• GDP per Capita: $10,434
• GDP – Purchasing Power Parity (PPP) : $17,204
• The Chinese economy, one of the fastest growing economies of the 21st century, now
ranked as the second largest economy in the world, is currently valued at a GDP of $14.86
trillion. With China’s Belt and Road Initiative effectively merging its foreign and economic
policy, promotion of using the Chinese Renminbi for the use of settlements has increased.
The country is increasingly playing an influential role in the global economy. It has been
the largest contributor to global growth since the financial crisis of 2008.
• As China has progressively opened its economy over the past four decades, economic
development and living standards have greatly improved. As the government has
gradually phased out collectivized agriculture and industry, allowed greater flexibility for
market prices, and increased the autonomy of businesses, foreign and domestic trade and
investment have taken off.
• Coupled with an industrial policy that encourages domestic manufacturing, this has made
China the world’s number one exporter.
• Despite these advantages, China faces some significant challenges, such as a rapidly aging
population and severe environmental degradation
 Rank 3 - Japan
• GDP – Nominal: $5.06 trillion
• GDP per Capita: $39,048
• GDP – Purchasing Power Parity (PPP): $5.24 trillion
• Japan’s four main islands – Honshu, Hokkaido, Shikoku, and Kyushu – constitute nearly 98% of
its land area. It has the world’s 3rd largest economy by nominal GDP and the 4th largest
economy by purchasing power parity (PPP).
• Ranked as one of most innovative countries in the world, Japan is the world’s largest
electronic goods producer and the 3rd largest automobile manufacturer. The country
generally has a surplus in annual trade and international investment. The country’s workforce
is highly qualified and skilled, proving to be instrumental in organizational growth. All of
these factors contribute to Japan being one of the top countries by GDP.
• Strong cooperation between government and industry and advanced technological know-
how have built Japan’s manufacturing and export-oriented economy. Many major Japanese
businesses are organized as networks of interlinked companies known as keiretsu.
• After the Lost Decade of the 1990s and the impact of the global Great Recession, Japan has
seen an uptick in growth in recent years under the policies of former Prime Minister Shinzo
Abe. However, Japan is poor in natural resources and dependent on energy imports,
especially after the general shutdown of its nuclear power industry following the 2011
Fukushima disaster. Japan has also struggled with a rapidly aging population.
 Rank 4 - Germany
• GDP – Nominal: $3.85 trillion
• GDP per Capita: $45,466
• GDP – Purchasing Power Parity (PPP): $4.45 trillion
• Germany has the 4th largest GDP in the world. The total value of exports and imports is equal to
86.9% of GDP. Germany is a European nation with the biggest drivers of its economy being its
service industries, including telecommunication, healthcare, and tourism. 
• The nation employs a social market economy that emphasizes the value of open-market
capitalism and also ensures a number of social services guarantees. The country is ranked #1 in
the world for entrepreneurship due to its skilled labor force, highly developed infrastructure, and
technological expertise.
• Fourth among world economies is Germany, with a 2020 GDP of $3.85 trillion.
• Germany is also Europe’s largest economy.
• Germany is a top exporter of vehicles, machinery, chemicals, and other manufactured goods and
has a highly skilled workforce.
• Germany, however, faces some demographic challenges to its economic growth. Its low fertility
rate makes replacing its aging workforce more difficult, and its high levels of net immigration
strain its social welfare system.
 Rank 5 – United Kingdom
• GDP – Nominal: $2.76 trillion
• GDP per Capita: $39,229
• GDP – Purchasing Power Parity (PPP): $2.98 trillion
• The United Kingdom (UK), also known as the United Kingdom of Great Britain
and Northern Ireland consists of England, Wales, Scotland, and Northern Ireland.
It is the 5th largest economy in the world and the 2nd largest in Europe in terms
of GDP. The UK ranks high in the annual Global Competitiveness Reports and the
World Bank’s Ease of Doing Business Rankings.
• The United Kingdom has the fifth-largest economy in the world. It had a GDP of
$2.76 trillion in 2019, down 9.7% from the prior year.
• The U.K. economy is driven by its large service sector, particularly in finance,
insurance, and business services. The nation’s extensive trading relationship with
continental Europe has been greatly complicated by the resolution of Brexit
subsequent to the 2016 vote to leave the European Union (EU). As of Jan. 31,
2020, the U.K. is officially not a member of the EU, but contentious negotiations
over trade relations between the two are ongoing.
 Rank 6 - India
• GDP – Nominal: $2.66 trillion
• GDP per Capita: $1,877
• GDP – Purchasing Power Parity (PPP): $8.68 trillion
• The Republic of India is a federal democracy that consists of 28 states and 8 union territories. It is
the largest democracy and the 6th largest economy in the world. India has thriving
manufacturing, technology, and service sectors. Since 2014, the rate of foreign direct investment
(FDI) inflows to India has grown steadily as some key policy changes were incorporated by the
government to facilitate this growth. This makes India one of the top countries by GDP in 2022.
• India is the sixth-largest economy in the world, with a GDP of $2.66 trillion in 2020, more than
7% lower than in 2019.
• Because of its large population, India has the lowest per-capita GDP on our list.
• India’s economy is a mixture of traditional village farming and handicrafts alongside booming
modern industry and mechanized agriculture. India is a major exporter of technology services
and business outsourcing, and the service sector makes up a large share of its economic output.
• Liberalization of India’s economy since the 1990s has boosted economic growth, but inflexible
business regulation, widespread corruption, and persistent poverty pose challenges to ongoing
expansion.
 Rank 7 - France
• GDP – Nominal: $2.63 trillion
• GDP per Capita: $39,257
• GDP – Purchasing Power Parity (PPP): $2.95 trillion
• France is the 7th largest economy in the world. It is the most visited destination in the world
and consequently has a thriving tourism industry. Also, foreign trade is an essential
component of its economy.
• The value of imports and exports comprise 63% of the country’s GDP. Strong protection of
property rights and an efficient regulatory framework encourage investors. France ranks 32 in
the World Bank’s 2019 Ease of Doing Business index. There are foreign players in various
sectors, and 31 out of Fortune 500 companies are from this prominent EU member. France
had a GDP of $2.63 trillion in 2020, ranking seventh in the world.
• Tourism is an important industry, and France receives the most visitors of any country each
year.
• France is a mixed economy that has many private and semi-private businesses across a
diverse range of industries. However, there is still heavy government involvement in certain
key sectors, such as defense and electrical power generation.
• The French government’s commitment to economic intervention in favor of social equality
also creates some challenges for the economy, such as a rigid labor market with high
unemployment and a large public debt relative to other advanced economies.
 Rank 8 - Italy
• GDP – Nominal: $1.88 trillion
• GDP per Capita: $30,657
• GDP – Purchasing Power Parity (PPP): $2.42 trillion
• Italy’s economy is the 3rd largest in the Eurozone and the 8th largest by GDP. In addition to its
sizable economy, Italy is one of the most influential countries in Europe; it is a key member of
the Eurozone, EU, the G7, the OECD, and the G20.
• Italy’s diversified economic growth is propelled by the consumer goods industry. GDP’s
expenditure side includes 61% of household consumption, 19% of government expenditure,
and 17% of the gross fixed capital formation. Exports of services and goods contribute to 30%
of GDP while imports account for 27%, adding 3% to GDP. The world’s eighth-largest GDP
belongs to Italy at $1.89 trillion in 2020, down 8.9% from 2019.
• It is also the Eurozone's third-largest economy.
• Italy’s economy and level of development vary notably by region, with a more developed,
industrial economy in the north and underdeveloped southern regions. Italy faces persistently
sluggish economic growth due to a very high public debt, an inefficient court system, a weak
banking sector, an inefficient labor market with chronically high youth unemployment, and a
large underground economy
 Rank 9 - Canada
• GDP – Nominal: $1.64 trillion
• GDP per Capita: $42,080
• GDP – Purchasing Power Parity (PPP): $1.81 trillion
• Canada has a mainly service-based economy. The threshold for foreign investment in Canada
is CAD 5 million for direct investments, and CAD 50 million for indirect investments. The
country has also been a key member of the World Trade Organization (WTO) since 1995.
• It also has extensive trading ties with many nations due to its bilateral and regional Free
Trade Agreements (FTAs). A well-educated workforce, multicultural/multilingual coexistence,
a thriving economy, and the government’s support for setting up business make Canada a
preferred investment destination.
• Canada had $1.65 trillion in GDP in 2020, making it the world’s ninth-largest economy.
• Canada has a well-developed energy extraction sector, with the world’s third-largest proven
oil reserves.
• Canada’s free trade relationship with the United States means that three-quarters of
Canadian exports head to the U.S. market each year. Canada’s close ties to the United States
mean that it has developed largely in parallel to the world’s largest economy.
 Rank 10 – South Korea
• GDP – Nominal: $1.63 trillion
• GDP per Capita: $30,644
• GDP – Purchasing Power Parity (PPP): $2.29 trillion
• South Korea was considered a developing country until the 1960s. Due to far-reaching
economic reforms (referred to as the Miracle of the Hangang River), the country’s economy
entered a period of rapid growth (about an annual 10% growth for over 30 years).
• South Korea places great importance on education, innovation and investment into research
and development. The country has a highly skilled workforce earning a high median
household income. Services provide the majority of the country’s GDP at 59%, with industry
is at 38% and agriculture at 2%.
• South Korea’s economy is a 20th-century success story that is today firmly established as an
advanced, industrial economy. Known for its strategy of export-led growth and the
dominance of its chaebols (large business conglomerates), South Korea in recent decades has
built a network of free trade agreements covering 58 countries that account for more than
three-quarters of the world’s GDP. It is a major producer and exporter of electronics,
telecommunications equipment, and motor vehicles.
• With this progress, however, South Korea also now faces some of the same challenges that
many other advanced economies are dealing with, including slower growth and an aging
workforce.
 Rank 11 - Russia
• GDP – Nominal: $1.48 trillion
• GDP per Capita: $9,972
• GDP – Purchasing Power Parity (PPP): $4.02 trillion
• Russia has the largest landmass of all countries in the world and boasts natural resources
worth $75 trillion, according to World Bank estimates. Ever since the privatization of
Russia’s energy and defense-related sectors in the 1990s, the country has taken great
strides when it comes to growth. 
• Revenues from oil, natural gas, and energy drive the Russian economy. Foreign trade is
important as the total value of imports and exports is equal to 46.7% of GDP, making
Russia one of the top countries by GDP. 
• Russia is the world’s 11th largest economy, with a GDP of $1.48 trillion as of 2020, 3%
lower than in 2019.
• Russia has moved toward a more market-based economy over the 30 years since the
collapse of the Soviet Union, but government ownership of and intervention in business is
still common. As a leading exporter of oil and gas, as well as other minerals and metals,
Russia’s economy is highly sensitive to swings in world commodity prices.
 Rank 12 - Brazil
• GDP – Nominal: $1.44 trillion
• GDP per Capita: $6,450
• GDP – Purchasing Power Parity (PPP): $3.08 trillion
• Brazil’s economy is the 12th largest in the world with an estimated worth of natural resources
being $21.8 trillion. This is one of the main reasons Brazil is one of the top countries by GDP
in 2020. The country’s diverse and open economy has developed flourishing trade
relationships with more than 100 different countries. According to the 2019 Index of
Economic Freedom, the total FDI in Brazil was $62.7 billion. 
• The Brazilian government promotes foreign investment in scientific and technological
infrastructure. Brazil’s moderate climate, excellent infrastructure, supportive government and
wealth of natural resources make it a highly favored destination for foreign investment.
• Brazil’s diversified economy runs the gamut from heavy industries, such as aircraft and
automotive production, to mineral and energy resource extraction. It also has a large
agricultural sector that makes it a major exporter of coffee and soybeans.
• Brazil emerged from a severe recession in 2017 and suffered a series of high-level corruption
scandals along the way. In the wake of these events, Brazil instituted a series of major
economic reforms intended to rein in public spending and debt, invest in energy
infrastructure, lower barriers to foreign investment, and improve labor market conditions
 Rank 13 - Australia
• GDP – Nominal: $1.33 trillion
• GDP per Capita: $51,885
• GDP – Purchasing Power Parity (PPP): $1.31 trillion
• Australia has the 13th largest economy in the world, with an overall GDP of $1.33 trillion and a
GDP per capita of $51,885. The economy experienced slower growth in 2017, with a 1.96%
increase in GDP. 
• Having rolled out in early 2017, Australia’s new foreign policy (a type of white paper agenda)
has created a roadmap for the country’s economic, security, and foreign policy relations. The
nation is ranked as the 12th best country in the world to set up a business due to low entry
costs and streamlined procedures.
• Australia is the 13th largest economy in the world, with a GDP of $1.33 trillion in 2020.
• Australia combines a relatively open domestic economy with an extensive network of free trade
agreements with trading partners all around the Asia-Pacific Rim. This works to the advantage
of Australia’s abundant natural resources and agricultural export industries. However, it has
also left Australia vulnerable to swings in world commodity demand and prices in energy (coal
and natural gas), metals (iron ore and gold), and agricultural products (beef and sheep
products)
 Rank 14 - Spain
• GDP – Nominal: $1.28 trillion
• GDP per Capita: $26,832
• GDP – Purchasing Power Parity (PPP): $1.77 trillion
• Spain is the 2nd largest country in the EU. Spain’s economy is facilitated by structural
reforms, transparent judicial/regulatory systems, and sound economic institutions. Steady
modernization has helped the Spanish economy grow continually with the industry sector
contributing nearly 27% to the country’s GDP. The total value imports and exports is equal
to 65.5% of GDP.
• Spain had a GDP of $1.28 trillion in 2020, making it the 14th largest economy in the world
by GDP.
• Spain’s economy suffered severely during the Great Recession, with unemployment
soaring above 25% and a rising national debt despite attempts at fiscal austerity. It has
recovered in recent years as moderating inflation and labor costs have encouraged foreign
investment and increased the competitiveness of Spain’s exports, including manufactured
machinery and foodstuffs. However, political instability has hindered the government’s
ability to sustain further economic reforms.
 Rank 15 - Indonesia
• GDP – Nominal: $1.05 trillion
• GDP per Capita: $4,038
• GDP – Purchasing Power Parity (PPP): $3.33 trillion
• Indonesia is the largest economy in Southeast Asia. The county is one on the world’s
emerging markets and has been a target of business expansion over the last decade.
• The country’s economy is heavily dependent on domestic market and government
budget spending. Since the 1990s, the majority of the economy has been controlled
by individual Indonesians and foreign companies. As Indonesia continues to increase
their global footprint, they will likely climb as one of the top countries by GDP in 2022
• Indonesia’s economy is the largest economy in Southeast Asia and is based largely on
commodity export industries. Major exports include coal and petroleum products, in
addition to agricultural commodities suitable for industrial use, such as rubber and
palm oil. Indonesia's budget deficit for 2023 is targeted at 2.81% to 2.95% of GDP.
However, regional inequality, lack of infrastructure, and governmental corruption
remain problems for Indonesia’s rising economy.