GDP and GNP

Following post is a courtesy from the text book Macroeconomic Policy Environment by Shyamal Roy.

We all know that GDP is Gross Domestic Product. It is a measure of economic activity in any country. GDP is simply calculated as sum total value of all goods and services produced in that country. It is usually measured every year, but of late due to volatilie economic conditions, it is measured every quarter. Ofcourse, more than the absolute number, the rate of change in these numbers every quarter is what makes interesting for stakeholders.

Now, what is Gross National Product (GNP)? GNP is simply the total value of goods and services producted by the residents of a country, irrespective of their geographic location. For example, people employed in Infosys India, goes abroad and earns money will be counted in the GNP of India, but will not be part of GDP of India. Let us say this employee is working in USA, his income will be part of US GDP and GNP of India. Now, you might say is it true for NRIs? No, the GNP is calculated only for resident Indians. So, obviously if this employee is staying beyond 180 days, his income will not be part of India's GNP.

Let us consider one more interesting number called, Net Factor Income from Abroad (NFIA). This number is very easy to derive (theoratically). Just take all the income earned by residents of India from rest of the world and subtract the income earned by non-residents of India in India. Currently this figure for India is negative, which means the income earned by foreigners in India is more than the income earned by Indians in outside India.

Do you now see the link between GDP, GNP and NFIA? Can we say, GDP = GNP - NFIA? Do you want to think how? Comment me if you dont get it.