What it means
Gross domestic product, or GDP, counts what is produced within a country's borders, regardless of who owns the producers. GNI looks at it from the point of view of ownership, counting income that belongs to the country's residents.
A country with large overseas investments will have a higher GNI than GDP, while one whose factories are mostly foreign-owned will have a lower GNI. The calculation is simple.
Take GDP, add the income that residents receive from abroad, such as wages, interest, dividends and profits, and subtract the income that foreign residents and companies earn within the country and send home. This adjustment is called net primary income from abroad.
GNI per person, or GNI per capita, is widely used to compare living standards across countries. The World Bank, for instance, uses GNI per capita to sort countries into income groups such as low, middle and high income.
Because the figure is converted into a common currency, exchange rates and price levels affect comparisons, which is why some analysts adjust for purchasing power. The difference between GDP and GNI can be large.
Ireland is a well-known example, where the profits of multinational companies inflate GDP but belong to foreign owners, so its statistics office publishes a modified measure to give a clearer picture of the domestic economy. Countries that receive large remittances from workers abroad may show a higher GNI than GDP.
For businesses, GNI helps in judging the true buying power of a market and the income base available for taxes and consumption. If you are choosing a country for expansion, GNI per capita is one of the quick measures of how much customers can afford.
It should be paired with other measures such as inequality, since an average can hide wide differences.
In practice
Real-world examples.
Example
An analyst compares two countries with equal GDP. One owns large overseas investments and the other is host to many foreign factories, so the first has a GNI well above its GDP and the second has a GNI below it.
Example
A development bank uses GNI per capita to decide which countries qualify for its lowest-cost loans. A country whose GNI per person rises above a set threshold may lose eligibility, though changes are usually phased in. Finance ministries therefore watch the figure closely when planning how to replace cheap loans with market borrowing.
Example
A consumer goods company is ranking potential new markets. It uses GNI per capita as a first filter, then looks at the size of the middle class and local prices before choosing where to open offices. A country with GNI per capita of $8,000 may be ruled out for premium products but kept for low-priced ranges. The same company would treat a market with GNI per capita of $51,000 very differently.
Formula
Calculation
GNI = GDP + Income received from abroad - Income paid abroad
GNI per capita = GNI / Population
Suppose a country has GDP of $500,000,000,000. Its residents and companies receive $30,000,000,000 of income from overseas investments and work, while foreign owners take $20,000,000,000 of income out of the country. GNI = 500,000,000,000 + 30,000,000,000 - 20,000,000,000 = $510,000,000,000. With a population of 10,000,000, GNI per capita = 510,000,000,000 / 10,000,000 = $51,000.Case study
Seen in the real world.
Marisol Republic is an illustrative, fictional island economy with GDP of $40,000,000,000, much of it from foreign-owned hotels and resorts. The government worried that GDP overstated how well its citizens were doing.
Its statistics office calculated that foreign owners took $8,000,000,000 of profits out of the country each year, while residents working abroad sent back $3,000,000,000. GNI was therefore 40 - 8 + 3 = $35,000,000,000, about 12.5% below GDP.
The finance ministry used the GNI figure to set tax targets and to plan spending, rather than relying on the more flattering GDP number. The illustrative lesson is that the right measure depends on the question, and for living standards GNI can be more informative.
Watch out
Common mistakes.
- Treating GNI and GDP as the same thing, when GNI is based on who owns the income and GDP on where production happens.
- Assuming a higher GNI means each person is better off, when the figure says nothing about how the income is shared.
- Comparing GNI across countries without noting currency conversion and price differences.
Questions
People also ask.
Is GNI the same as GNP?
They are essentially the same concept, as gross national product is the older name and GNI is now the standard term in most national accounts.
Why does GNI matter for development?
International organisations use GNI per capita to classify countries and decide on loan terms and aid eligibility.
Can GNI be higher than GDP?
Yes, it is higher when residents earn more from abroad than foreigners earn at home.
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