2.24: GNI and GDP

Gross National Income (GNI) is a comprehensive measure of the total income earned by the residents of a country, regardless of where that income is generated. Residents refer to individuals, businesses, and institutions that have their primary economic interest within the country, even if they temporarily live or operate abroad.

GNI includes all domestic economic activity measured by Gross Domestic Product (GDP) and adjusts for income flows across borders. Specifically, GNI equals GDP plus net primary income from abroad, which consists of income earned by residents from foreign investments and employment, minus income earned by foreign residents within the domestic economy.

GNI vs. GDP: Conceptual Differences

The key conceptual distinction between GNI and GDP lies in what each measures. GDP quantifies the total value of final goods and services produced within a country’s borders during a given period, irrespective of the nationality or residence of the income recipients. In contrast, GNI focuses on the total income accrued by residents of a country, including earnings from international activities.

Formally, the relationship is expressed as:

GNI = GDP + (Income earned by residents from abroad − Income earned by foreigners domestically)

This adjustment accounts for cross-border income flows and aligns the income measure with ownership rather than geographic location.

Illustrative Examples

Consider a U.S.-based corporation that operates a factory in Germany. The output of that factory contributes to Germany’s GDP, as the production occurs within German territory. However, the profits repatriated to the U.S.-based parent company contribute to the United States’ GNI, reflecting the income earned by U.S. residents from abroad.

Similarly, if a U.S. engineer works temporarily in Germany, her output adds to Germany’s GDP. Yet her salary, being earned by a U.S. resident, is counted in the U.S. GNI. Conversely, if a foreign engineer works in the U.S., her earnings contribute to U.S. GDP but not U.S. GNI, as the income is ultimately attributed to a non-resident.

These distinctions are critical in a globalized economy, where capital and labor frequently cross national boundaries. GNI provides a more accurate representation of the economic resources available to a country's residents, especially for nations with substantial income flows related to foreign investments and expatriate labor.

Gross National Income represents the total income earned by a country's residents, including income from abroad. In simple terms, GNI equals the nation’s Gross Domestic Product plus net income from abroad.

Net income from abroad refers to the income earned by a country's residents from foreign sources—such as investments or employment overseas—minus the income earned by foreigners within the country.

The key difference between GNI and GDP lies in the ownership of income versus the location of production.

GDP measures the value of goods and services produced within a country’s borders, regardless of who owns the production.

GNI, on the other hand, measures the total income earned by a country’s residents, no matter where the income is generated.

For example, if an American company operates a factory in Germany, its output contributes to Germany’s GDP. However, the profits the company earns count toward the United States’ GNI, as the income goes to American residents.

Conversely, if a French company operates a factory in the U.S., its output adds to U.S. GDP, but the profits go to France’s GNI, because the income is received by French residents.