Can You Differentiate Between GNP And GDP?

The difference between GDP and GNP is that while the former takes into account all the final goods produced in the domestic country whoever may produce these, the latter takes into account all the final goods produced by the domestic nationals wherever they may produce these. If we think in terms of capabilities of the people of a particular country, GNP is obviously better. But for the ease of calculation, countries are increasingly switching to GDP measure in recent years.

Generally the students do not keep the difference between gross national product (GNP) and gross domestic product (GDP) in view which can culminate into the various conceptual errors. There are various production sectors in every country and each sector produces a particular quantity of goods. Different raw materials are used in producing the goods. For instance, cotton is used for producing cloth, for which the farmer uses the seeds, fertilizers, insecticides, pesticides, etc. The production, in this manner, is divided into different parts. It should be noted that on every next stage of production, the value is added in the production. For example, the value of the yarn as compared to raw cotton, cloth as compared to yarn and garments as compared to cloth is always higher. In other words, the total value of finished goods is nothing but the aggregate of the stage wise additions. The total quantity of product, in this way, is called 'Gross Domestic Product'.

These goods are produced in the country but are exported to other countries, are deduced from the Gross Domestic Product and what ever is earned by the local people from other countries is added. In this way, what ever is achieved finally is called 'Gross National Product'.