GDP vs. GNI — What's the Difference?

GDP is the total value of goods and services produced within the borders of a country. It’s a critical measure of economic health. It doesn’t matter who produces it; as long as it’s produced within the country, it’s included in the GDP. GNI, on the other hand, is a measure of the total income earned by a country’s residents and businesses, including any international income. GNI considers the value generated by the country's residents both domestically and abroad.

In the case of countries with a significant number of foreign companies operating within their borders, the GDP would give a skewed impression of the national economic well-being, and GNI would provide a more accurate picture. Both GDP and GNI are crucial for assessing a country’s economic health, its development over time, and its standing in international markets. They offer different perspectives and insights, underlining the importance of considering both when analyzing a country’s economic state.

The calculation of GDP is based on the expenditure approach, the income approach, or the production approach. GDP is crucial to economists and policymakers for economic planning and policy formulation. GNI, conversely, helps to understand the economic strength of a country and its residents' average living standards. It’s especially useful when comparing the economic well-being between different countries as it includes international operations and transactions.

While GDP focuses strictly on the location of production, GNI turns its attention to ownership. When a country’s businesses own a significant amount of the productive activities in foreign countries, its GNI will be significantly larger than its GDP. Conversely, when foreign businesses own a considerable amount of productive activities within a country, the GDP will be larger than the GNI.