GDP versus GNP

[Shawady]

In layman's terms whats the difference between the two?
I have often read that because of the large number of multinational companies in Ireland that only one of these should be used as a reliable indicator of economic growth. Which one?

 

[Creditlimit]

Explanation below seems to nail this on the head:
Definitions: GNP and GDP
You can think of GNP (Gross National Product) or GDP (Gross Domestic Product) as the amount of "stuff" - goods and services - that is produced.

The difference between GNP and GDP is a matter of the nationality of the producers and the location of production:

GNP = goods and services produced by Irish corporations in Ireland + goods and services produced by Irish corporations in other countries

GDP = goods and services produced by Irish corporations in Ireland + goods and services produced by foreign corporations in Ireland

You can think of these as measures of national output or income. GDP divided by the population would sometimes be referred to as per capita income.


Question: Do you think GDP or GNP is bigger in the case of Ireland?

Answer: GDP in Ireland is substantially larger than GNP due to all the Transnational Corporations (TNCs) in Ireland. This is at odds with the rest of the EU and the U.S. where GDP and GNP are fairly close.

 

[Sunny]

GNP. GDP includes what is produced by multinationals so for example the value of what Intel produces is included in GDP but not GNP because it is US owned.

Most economists would say that you should use GNP rather than GDP to measure the Irish economy but there are others who argue it is not that important. Most countries just use GDP so that is what markets tend to focus on. Ireland is a strange case because we have such a large multi-national sector so I would say GNP gives a better picture of true economic performance.

 

[Duke of Marmalade]

I'll have a go, not sure I fully agree with CreditLimit's explanation.

GDP is the goods and services produced in Ireland.

GNP is the GDP less income paid abroad plus income received from abroad.

Thus GNP is adjusted downwards for payments of interest on debt and repatriations of profits etc. to foreign investors and adjusted upwards for any such interest/dividends etc. flowing into Ireland from abroad.

GDP is a measure of domestic economic production.

GNP is a measure of domestic income generation.

They should be broadly equal but in Ireland's case the multi nationals take a significant chunk of our GDP in profit repatriations. There are strong suspicions though that these profits are artificially bloated by transfer pricing and that Ireland isn't really fully producing the goods and services behind these profits. It is only because of this possible distortion that one can really argue that GNP is a better measure than GDP, otherwise the answer depends on the context.

For example which is the best indicator of the Government's tax base? Normally that should be GDP. However, the artificiality of our GDP would render this answer misleading for policymakers, for if the Government sought to tax those multinational profits at say 20% they would quickly find the multinationals and the transfer pricing distortion disappear.

 

[Taxi Driver]

The importance of this distinction is used, sometimes technically, here. Our inflated GDP figures make international comparisons harders. The difference between GNP and GDP is alarming.

Ireland: A low-tax Economy? and Ireland: A high-spend Economy?

The problem is that it appears to me that statistics can be used to support virtually any argument. I do agree with the conclusion that adjustments should be made on both sides, but would put a greater emphasis on (wealth) tax increases.