What it means
The easiest way to grasp gross national income is by contrast with gross domestic product. Gross domestic product measures production inside a country's borders regardless of who owns it, while gross national income measures the income of the country's residents regardless of where they earned it.
A factory in a country owned by foreign shareholders adds to that country's domestic product, but the profits sent home count towards the owners' national income instead. That distinction is small for large, relatively self-contained economies and enormous for others.
Countries with a lot of foreign-owned industry typically show national income well below domestic product, because profits flow out. Countries whose citizens work abroad and send money home, or whose companies own substantial assets overseas, often show the reverse.
The adjustment between the two measures is called net primary income from abroad. It covers wages earned by residents working overseas, dividends and interest received on foreign investments, and profits repatriated by domestically owned multinationals, minus the equivalent amounts paid out to non-residents.
Statistical agencies compile these flows through the balance of payments. Gross national income matters practically because it drives real decisions about money.
The World Bank uses gross national income per person to sort countries into low, lower-middle, upper-middle and high income groups, and those classifications influence eligibility for concessional lending and development aid. Contributions to some international bodies are also scaled to it.
For a business audience the measure is a useful backdrop rather than a daily tool. A rising national income figure suggests households in that market have more to spend, which matters when deciding where to open the next office or how ambitious to be with a pricing strategy.
The per-person version is more informative than the total, since a large total can simply mean a large population.
In practice
Real-world examples
Example 1
A consumer goods company assessing three markets for expansion ranks them by gross national income per person rather than total domestic product, because it wants a proxy for household purchasing power rather than for the sheer size of local factories.
Example 2
A country hosting large foreign-owned manufacturing plants reports domestic product well above national income, since a substantial share of the profits produced locally is paid out to overseas parent companies. Its finance ministry uses the national income figure when talking about living standards.
Example 3
A development agency reviewing a lending application checks the applicant country's gross national income per person and finds it has just crossed the threshold from lower-middle to upper-middle income. That reclassification changes the terms on which future loans can be offered.
Think of it
Think of it like a household budget. Your domestic product is the total money made inside your family house, while your national income is all the money your family members actually bring home, including side hustles done elsewhere and money sent back by relatives living abroad.
Formula
Calculation
Gross National Income = Gross Domestic Product + Primary Income Received from Abroad - Primary Income Paid to Abroad.
Consider a mid-sized economy with gross domestic product of $900 billion for the year. Its residents and companies received $45 billion in wages, dividends, interest and repatriated profits from abroad, and paid $28 billion of the same kinds of income to non-residents.
Net primary income from abroad = $45bn - $28bn = $17 billion.
Gross National Income = $900bn + $17bn = $917 billion.
So national income exceeds domestic product by $17 billion, indicating that residents own more income-producing assets overseas than foreigners own in the country. With a population of 20 million, gross national income per person is $917,000,000,000 / 20,000,000 = $45,850, against gross domestic product per person of $900,000,000,000 / 20,000,000 = $45,000. The $850 gap per person is the part of national living standards funded by earnings from abroad rather than by domestic production.Case study
Seen in the real world
Meridiana is a fictional island economy invented purely to illustrate the difference between these two measures. Its statistics office reported gross domestic product of $46 billion, a figure the tourism ministry used enthusiastically in investment brochures.
The economics team then published the national income figure, which came in at $39 billion. Most of the island's hotels, shipping terminals and processing plants were owned by overseas groups, and roughly $9 billion of profit left the island each year, offset by only $2 billion of income earned abroad by residents. The gap said something uncomfortable but important: a good deal of the activity happening on the island did not translate into income for the people living there.
In this illustrative case the government did not stop reporting domestic product, since it remained the right measure of activity and employment. Instead it began publishing both figures side by side and set a policy goal of narrowing the gap by encouraging local ownership stakes in new developments.
Watch out
Common mistakes
- Treating gross national income and gross domestic product as interchangeable. They answer different questions, one about production inside the borders and one about income accruing to residents.
- Comparing total national income between countries of very different sizes. The per-person figure is what tells you about living standards, since a bigger population produces a bigger total almost automatically.
- Assuming the measure counts household income only. It includes company profits, government income and investment returns, so it is far broader than what appears in people's pay packets.
Questions
People also ask
Is gross national income the same as gross national product?
They are very close, and the modern national accounts use gross national income as the income-based equivalent of what older texts called gross national product.
Why does the World Bank use it for country classification?
Because it captures the income available to a country's residents, which is a better guide to development status than production alone.
Does it account for differences in living costs?
Not by itself, which is why national income per person is often converted to purchasing power parity terms before countries are compared.