What Is The Difference Between GDP And GNI?

What Is The Difference Between GDP And GNI? 

In the economic realm, there are two rather important concepts that need to be understood before delving into any other economic measures. These two concepts are Gross Domestic Product (GDP) and Gross National Income (GNI). It is important to understand the difference between GDP and GNI so that one can begin to make informed economic decisions.

This article will explain the major differences between GDP and GNI in order to give the reader a better understanding of what each measure actually represents.

What Is Gross Domestic Product (GDP)? 

GDP is a measure of the total economic output of a given country in one year. It takes into account the market value of all goods and services produced in the country, including international trade and investment. As such, it is considered to be the most comprehensive measure of a country’s economic output.

It can be measured in three different ways:

  1. The “market value” approach calculates the total value of all final products and services in a given year.
  2. The “income” approach calculates the total income of all factors of production in a given year.
  3. The “expenditure” approach calculates the total expenditure on final goods and services in a given year.

What Is Gross National Income (GNI)? 

GNI is defined as the total money generated by a country’s citizens and businesses, regardless of where they are located. This measure includes the income from both domestic and foreign sources, such as investments, wages, profits, and rent.

GNI does not include income generated outside the borders of the country. For example, income generated from abroad by foreign workers will not be included in GNI calculations.

Major Differences Between GDP And GNI 

There are several major differences between GDP and GNI that should be taken into account when measuring a country’s economic performance. These include:

  1. GDP is a measure of a country’s domestic economic output, while GNI is a measure of a country’s total (domestic and foreign) economic output.
  2. GDP only accounts for the value of final goods and services while GNI accounts for all income, regardless of whether it is generated inside or outside of the country.
  3. GDP is a measure of a country’s economic performance in one year, while GNI can be used to measure a country’s total economic output over multiple years.

The Impact of Foreign Investment on GDP and GNI 

Foreign investment is an important part of both GDP and GNI. When a foreign investor invests in a country, it will have a positive impact on both measures.

For example, if a foreign investor buys stocks or bonds in a country, it will increase the value of both measures. This is because the investor is creating economic activity and generating income within the country.

On the other hand, if a foreign investor pulls out of a country, it will have a negative impact on both measures. This is because the investment activity is decreasing and there is a reduction in economic activity and income.

When dealing with economic measures, it is important to understand the differences between GDP and GNI. GDP is a measure of a country’s domestic economic output, while GNI is a measure of its total (domestic and foreign) economic output.

Foreign investment can have both a positive and negative impact on GDP and GNI. Knowing the difference between these two measures can help inform how to make more informed economic decisions.

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