Skip to main content
It looks like you're using Internet Explorer 11 or older. This website works best with modern browsers such as the latest versions of Chrome, Firefox, Safari, and Edge. If you continue with this browser, you may see unexpected results.

Economics & Business: GDP

GDP

Other Measures of Economic Growth

Gross national product (GNP) is the market value of all the products and services produced in one year by labour and property supplied by the citizens of a country. Unlike gross domestic product (GDP), which defines production based on the geographical location of production, GNP allocates production based on location of ownership.

Formula for GNP Calculation

GNP = GDP + NR (Net income inflow from assets abroad or Net Income Receipts) - NP (Net payment outflow to foreign assets)

Example of GNP

If a Japanese multinational produces cars in the UK. This production will be counted towards UK GDP. However, if the Japanese firm sends £50m in profits back to shareholders in Japan. Then this outflow of profit is subtracted from GNP. UK nationals don’t benefit from this profit.

The Human Development Index (HDI) is a composite statistic of life expectancyeducation, and income indices used to rank countries into four tiers of human development. It was created by Indian economist Amartya Sen and Pakistani economist Mahbub ul Haq in 1990 and was published by the United Nations Development Programme.

The HDI was created to emphasize that people and their capabilities should be the ultimate criteria for assessing the development of a country, not economic growth alone. It can be used to question national policy choices. However, the HDI does not reflect on inequalities, poverty, human security, empowerment, etc. 

The assessment of gross national happiness (GNH) was designed in an attempt to define an indicator and concept that measures quality of life or social progress in more holistic and psychological terms than only the economic indicator of GDP.

GNH has only been officially used in Bhutan, where a Gross National Happiness Commission is charged with reviewing policy decisions and allocation of resources.

The concept of GNH consists of four pillarsfair socio-economic development (better education and health), conservation and promotion of a vibrant cultureenvironmental protection and good governance.

What is GDP (Gross Domestic Product)?

DEFINITION of "Gross Domestic Product" - GDP

GDP is generally defined as the monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments, and exports less imports that occur within a defined territory.

GDP = C + G + I + NX

where:

C is equal to all private consumption, or consumer spending, in a nation's economy.

G is the sum of government spending.

I is the sum of all the country's businesses spending on capital.

NX is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports - Imports)

To summarize, GDP is like a price tag on a country's output, and it measures the size of the economy. 

What's NOT Included in the GDP?

GDP is commonly used as an indicator of the economic health of a country, as well as to measure a country's standard of living. Despite being a broad measure, there are several things that GDP does not measure that are essential for both the economy and society. Basically, in order for something to be included in GDP, it has to be something that is actually produced. It has to be something that isn't used to produce something else. It has to be produced here and not somewhere else, and it also has to be legal. 

What's Not Included in the GDP

  • Sales of goods that were produced outside our domestic borders
  • Sales of used goods
  • Illegal sales of goods and services (which we call the black market)
  • Transfer payments made by the government
  • Intermediate goods that are used to produce other final goods 

 

Thank You!

Thank you to librarian Uma Manikantan's Business Guide, Tanglin Trust School, Singapore