Distinguish between Gross National and Gross Domestic products and account for the lower values of the former in developing economies
Gross Domestic Product (GDP) – the money value of all (final) goods and services produced within the country but excluding net income from abroad.
- Gross National Product (GNP) – The money value of all (final) goods and services produced the nationals of a country during a year both within and outside the country.
- GDP + (Net Income from abroad) = GNP: In most developing countries/economies GNP is lower than GDP because the net Income from abroad is usually very low and particularly negative. We have for instance very few Kenyans who have invested in other (developed) countries compared to the large volumes of foreign direct investment (FDI) in the country.
- GNP = GDP +[Production – Production foreigners nationals abroad (c) within a developing country (F)]
- GNP = GDP + (C – F); Since (c) is very small compared to (F) then the negative effect (reducing effect) on GDP is high. The negative net Income from abroad drastically reduces GNP since GNP = GDP + [-(C – F)].