GNP or Gross National Product is also used with GDP to denote the size of an economy or country. The difference between GDP and GNP is because of their scope of calculation. GDP is calculated based on the location or region where GNP is calculated based on Ownership or nationality.
As we know GDP is the total value of all the goods and services produced within a country irrespective of the ownership. Here the producing firm or enterprise can be owned by some foreigner or foreign company. But GNP of a country is the total value of all the goods and services produced by enterprises or companies owned by that country’s citizens. Here the goods and services produced by some enterprise or firms located outside the country but owned by the country’s citizens will be included while calculating the GNP.
We can explain the same considering the example of multinational IT giant IBM Corp. which is mainly owned byUSCitizens. IBM has subsidiary in most of countries in the world and IBM India Pvt Ltd is its subsidiary insideIndia. Now all the services produced by IBM India Pvt Ltd inIndiawill be included in the GDP calculation ofIndiaand GNP calculation of US. While calculating the GDP of US and GNP of India, this produced service will not be included. Hope this example makes this understandable. If we consider the whole world for GDP and GNP calculation, both should give the same value.
Because of simplicity in calculation and other reasons, GDP is more preferable to GNP and all the countries use GDP as the standard measurement of economic size.