What it means
Gross national product asks whose production it is rather than where the production happened. If a domestically owned engineering firm runs a plant abroad, its output counts towards national product; if a foreign-owned carmaker runs a plant at home, its output does not.
Gross domestic product takes the opposite view and counts everything produced within the borders. The bridge between the two is net factor income from abroad, meaning the wages, profits, dividends and interest earned overseas by residents minus the equivalent amounts earned domestically by non-residents.
Add that net figure to domestic product and you get national product. When the net figure is negative, national product comes in below domestic product.
The measure was the headline statistic in many countries for decades before domestic product took over in the early 1990s. The switch happened because domestic product is easier to measure consistently, ties more directly to employment and tax revenue within a country, and matches how most short-term policy questions are framed.
National product still appears in older texts and in a handful of official releases. For most countries the two figures sit within a per cent or two of each other, which is exactly why the distinction is often glossed over.
The gap widens sharply in economies dominated by foreign direct investment or in those whose citizens work abroad in large numbers. In those cases treating the two measures as interchangeable produces a genuinely misleading picture.
If you meet the term in a modern context, it is usually either a historical comparison or shorthand for gross national income. The two are conceptually the same, one built up from production and the other from income, and national accounting bodies now use the income version as the standard.
Knowing this saves you from thinking a source has made an error when it uses one label rather than the other.
In practice
Real-world examples.
Example
An economic history lecturer compares growth rates from the 1970s using national product because that was the series governments actually published at the time. Converting the old figures to a domestic product basis would require ownership data that was never collected consistently.
Example
A country with a large diaspora working overseas shows national product noticeably above domestic product, because wages earned abroad by its citizens count towards national output. Its central bank tracks the gap as an indicator of remittance dependence.
Example
An investment committee assessing sovereign risk notes that a candidate country's national product runs about 8% below its domestic product, reflecting heavy foreign ownership of its mining sector. The committee treats domestic product growth as a weaker signal of local prosperity than it would elsewhere.
Formula
Calculation
Gross National Product = Gross Domestic Product + Income Earned Abroad by Residents - Income Earned Domestically by Non-Residents.
An economy reports gross domestic product of $1,200 billion for the year. Its residents and domestically owned companies earned $60 billion abroad through overseas operations, foreign investments and wages, while non-resident owners earned $85 billion inside the country.
Net factor income from abroad = $60bn - $85bn = -$25 billion.
Gross National Product = $1,200bn - $25bn = $1,175 billion.
National product is therefore $25 billion below domestic product, which is what you expect in an economy that hosts more foreign-owned activity than its residents own overseas. As a proportion, national product is $1,175bn / $1,200bn = 97.9% of domestic product, a gap of about 2%. That is modest, but on a per-person basis in a country of 25 million people it amounts to $25,000,000,000 / 25,000,000 = $1,000 per person of production that generates income for someone abroad.Case study
Seen in the real world.
Corvale is an invented small nation used here as a fictional illustration. For fifteen years it attracted foreign electronics manufacturers with tax incentives, and its domestic product climbed steadily, which ministers cited constantly as evidence of success.
A parliamentary committee eventually asked its statistics office to publish national product alongside the domestic figure. The result was uncomfortable: domestic product had grown by 62% over the period, but national product had grown by only 38%, because a growing share of the value created was profit belonging to overseas parent companies. Employment had genuinely risen, so the incentives had not failed, but the gap showed that a large slice of the growth was accruing to non-residents.
In this illustrative case the committee recommended publishing both series in every quarterly release, and rewriting the investment incentive rules to favour projects with local ownership participation. The point was not that foreign investment was unwelcome, but that a single headline number had been answering a different question from the one the public thought it was answering.
Watch out
Common mistakes.
- Using national product and domestic product as synonyms. They differ by net factor income from abroad, which is trivial in some economies and very large in others.
- Assuming national product is the outdated and therefore inferior measure. It is not worse, it simply answers an ownership-based question, and its modern successor, gross national income, is used routinely.
- Thinking the difference between the two reflects trade in goods. The gap comes from income flows attached to ownership and labour, not from exports and imports, which are already inside the domestic product figure.
Questions
People also ask.
Is gross national product still published?
Rarely as a headline figure, since most statistical agencies now report gross national income instead, but the concept remains identical.
Which measure is better for judging living standards?
The national measure, since it reflects income accruing to residents, though it should be viewed per person and adjusted for price differences.
Why did countries switch to domestic product?
Because it is easier to measure, aligns with the tax base and employment inside the borders, and responds more directly to domestic policy.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related