GDP and GNI could be very different depending on who owns the factors of production.
Gross domestic product and gross national income are two metrics that help people understand how big and powerful a country's economy is. Although the metrics are similar, they can depend on one key factor: who owns the methods of production and generates income from them.
Gross Domestic Product
The gross domestic product (GDP) of a country is the value of all goods and services produced in the country over the course of a year. It can be measured by the expenditures of a country as well. It is usually calculated by taking the expenses categorized in four groups of an economy--government expenditures, net exports, investment and consumption. Net exports is just exports minus imports. By adding the four groups of expenses, the GDP of a country is found. For example, say a country's government expenditures were $2 million last year, net exports were $5 million, investment was $3 million and consumption was $7 million. The GDP is $2 million, plus $5 million, plus $3 million, plus $7 million for a total of $17 million.
Gross National Income
The Gross National Income (GNI) of a country is the GDP plus the net income received from other countries. Net income is characterized as income received from other countries, minus the income the country sends to the other countries. For example, say a country's GDP is $20 million, its companies earned $10 million overseas and foreign companies earned $5 million in the country. The GNI would be $20 million, plus $10 million, minus $5 million for a total of $25 million.
Difference
The main difference between the two is the focus of production. The GDP focuses on the income from products and services produced inside the borders of a country while the GNI focuses on income from products and services owned by the residents of the country. A country's GNI and GDP could be totally different depending on who owns what.
Use
The GDP of a country is commonly reported in the press and widely used as the main economic metric to see how strong a country's economy is. However, GNI is also a valuable supplement to an analyst researching the strength of an economy. GNI takes into account more factors than GDP and can make for a better metric to gauge the strength of a country's economy.
