4.7 GNP – An alternative measure of Output

While GDP represents the most commonly used measure of an economy’s output, economists sometimes use an alternative measure. Gross national product (GNP) is the total value of final goods and services produced during a particular period with production factors owned by a particular country’s residents.

The difference between GDP and GNP is a subtle one. A country’s GDP equals the value of the final output produced within the borders of that country; the GNP of a country equals the value of the final output produced using factors owned by residents of the country operating outside the geographical boundary. So, which, out of the two estimates, do you think is a better indicator of a country’s economic performance?

Example

Suppose, for example, a Bellingham, Washington, resident owns and operates a watch repair shop across the Canadian–U.S. border in Victoria, British Columbia. The value of watch repair services produced at the shop would be counted as part of Canada’s GDP because they are produced in Canada. That value would not, however, be part of the U.S. GDP because it is produced outside the U.S. However, because the watch repair services were produced using capital and labour provided by a resident of the United States, they would be counted as part of GNP in the United States and not as part of GNP in Canada.