The Gross National Product (GNP)
Several methods are used to estimate total economic activity in a country or region. They are required to provide a way of determining if the growth in the economy is as required and the policy being used by the government is actually doing what it is intended to. Nations with a higher economic activity per person score higher in the measures of welfare of their citizens such as life expectancy.
One of the methods of measures of total economic activity is the Gross National Product or GNP. This formula summarizes how GNP is calculated:
GNP = C + I + G + (X - M) + A - F
Where:
For America the GNP provides a measure of the total economic activity by Americans whether in America or abroad. Usually the value of income earned by foreigners in a country is equal to the income earned by the country’s nationals on foreign soil, i.e. A=F, A-F =0. For America this is the case. This may not be the case for all countries; in Ireland for example around 20% of economic activity is due to foreign firms with a very small number of Irish firms operating on foreign soil. This makes the value of F in the above equation above much higher than the value of A. Similarly in several nations a large part of the economic activity is by their citizens working abroad and significantly exceeds the income earned by foreigners in those nations, in this case A is larger than F.
Per capita GNP gives a very good idea of the development of a nation and the conditions in which its citizens live. Industrially advanced countries such as those in North America, Europe and Japan have a per capita GNP of over $10,000. Most of Africa and Asia has a per capita GNP of less than $1, and this clearly is in consonance with the extreme poverty that people there live in. Many countries in Africa, Latin America and Asian countries like South Korea, Taiwan, Hong Kong and Singapore have increased their per capita GNP and this has led to better lifestyles for people in those areas. The per capita GNP though is not a perfect tool to measure the welfare of citizens in many countries as the GNP is not distributed uniformly. Often a small percentage of the population has a very high income level making for a skewed per capita figure.
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One of the methods of measures of total economic activity is the Gross National Product or GNP. This formula summarizes how GNP is calculated:
GNP = C + I + G + (X - M) + A - F
Where:
- C = Household consumption expenditures / Personal consumption expenditures
- I = Gross private domestic investment
- G = Government consumption and gross investment expenditures
- X = Gross exports of goods and services
- M = Gross imports of goods and services
- A = Income earned by the country’s nationals on foreign soil
- F = Income of foreigners earned on the country’s soil
For America the GNP provides a measure of the total economic activity by Americans whether in America or abroad. Usually the value of income earned by foreigners in a country is equal to the income earned by the country’s nationals on foreign soil, i.e. A=F, A-F =0. For America this is the case. This may not be the case for all countries; in Ireland for example around 20% of economic activity is due to foreign firms with a very small number of Irish firms operating on foreign soil. This makes the value of F in the above equation above much higher than the value of A. Similarly in several nations a large part of the economic activity is by their citizens working abroad and significantly exceeds the income earned by foreigners in those nations, in this case A is larger than F.
Per capita GNP gives a very good idea of the development of a nation and the conditions in which its citizens live. Industrially advanced countries such as those in North America, Europe and Japan have a per capita GNP of over $10,000. Most of Africa and Asia has a per capita GNP of less than $1, and this clearly is in consonance with the extreme poverty that people there live in. Many countries in Africa, Latin America and Asian countries like South Korea, Taiwan, Hong Kong and Singapore have increased their per capita GNP and this has led to better lifestyles for people in those areas. The per capita GNP though is not a perfect tool to measure the welfare of citizens in many countries as the GNP is not distributed uniformly. Often a small percentage of the population has a very high income level making for a skewed per capita figure.
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