elaborated difference between GNP and GDP

Essay by danielgichumbiUniversity, Bachelor'sA, February 2013

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According to Lacey Jim, (2011), Gross Domestic Product (GDP) is the measure economists typically use to indicate the total size or value of economic production in an economy. There is a similar measure called Gross National Product (GNP). That's because until a few decades ago GNP was the measure most often cited as the lead measure in the U.S. to describe the health of the economy. That shifted. Now GDP is generally the preferred measure.

So what's the difference? Well, first let's look at the similarities. Both GDP and GNP measure "the market value of all goods and services produced for final sale in an economy". The difference is in how we define "the economy". GDP focuses on domestic production. In other words, it defines a nation's economy in geographical terms. Whatever is actually produced inside the country, regardless of who is doing the producing or who owns the productive capital that produces it.

In the case of the U.S., it means whatever is produced within the 50 states. GNP however focuses on the production by nationals. In other words, GNP defines the nation's economy in people or resident terms. It counts whatever is produced by the residents or citizens of a nation regardless of where those people may be doing the producing. In the case of the U.S., this means that GNP measures anything produced by Americans or American-owned capital wherever it may be in the world. (Carson, Carol. 2001)

So in practical terms Gilbert, (2010) that it's multinational or transnational corporations where the differences arise. Let's consider the auto industry. If Ford, a U.S. company, produces in cars in Dearborn, MI, then the value of the cars counts toward both GDP and GNP. Similarly, when BMW, a German corporation, builds cars in Germany, it counts towards both...