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What Is Gross National Income (GNI)? Definition and Examples

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A country’s economic production is measured by its gross national income (GNI), which is calculated by adding the values of all the goods and services it provides, including both domestic and international sources of revenue. Gross domestic product (GDP), which measures a nation’s internal economic output, and GNI are related concepts. GNI, however, takes into account revenue from international sources, including overseas earnings made by domestic businesses or foreign investments.

GNI is often used to measure a nation’s economic progress and level of life as well as to compare the financial health of various nations. Additionally, the World Bank and other international organizations use it to divide nations into income categories according to the level of their economic growth.
It can be calculated using a number of different methodologies, such as the Atlas, World Bank, and IMF approaches. The Atlas technique, which is based on the country’s currency’s market exchange rates, is the one that is most frequently utilized. Purchasing power parity (PPP) exchange rates, which account for regional variations in the cost of living, are used in both the World Bank and the IMF methods.

Real-World Example of Gross National Income

Gross National Income (GNI) is a metric for the overall earnings of a nation’s people and enterprises, both at home and abroad. It is frequently used to compare the wealth of other nations and serves as a gauge of a nation’s economic health.

Here is an example of how GNI is used in the real world:
Imagine that you are deciding where to invest resources for a development organization that you work for. Data on the GNI of several nations in the region where you work is provided to you. Once the data has been analyzed, you discover that Country A has a GNI of $10,000 per person while Country B has a GNI of $5,000. As a result, you can choose to provide Country B additional funding in order to alleviate economic disparity and raise the standard of living for its population. This shows that Country A is wealthier than Country B.

Another instance of how GNI is applied in practice is when deciding whether a nation qualifies for grants or loans or other forms of financial assistance. For instance, a nation with a very low GNI can be qualified for a development loan with more lenient terms, but a nation with a larger GNI might be required to pay a higher interest rate.

When is Gross National Income Useful 

Gross National Income (GNI) is a metric for the overall earnings of a nation’s people and enterprises, both at home and abroad. It is useful in a variety of circumstances, such as:

  • Determining a country’s level of economic development: GNI per capita, which is calculated by dividing the GNI by the population, is frequently used to gauge the economic progress of a nation. A greater GNI per capita corresponds to a higher standard of living.
  • Comparing the wealth of various nations: GNI can be used to do just that, as well as to monitor wealth fluctuations over time.
  • Allocating resources: Based on a country’s level of economic prosperity, organizations like development agencies and charities may utilize GNI to help them choose where to devote their resources.
  • Identifying a country’s eligibility for financial aid: The GNI can be used to identify a country’s eligibility for financial aid, including loans and grants.
  • Measuring the impact of economic policies: GNI is a common way for governments and economists to measure how economic policies have an effect on a nation’s wealth.

GNI is a valuable indicator of a nation’s economic health that may be applied in a number of situations to help understand and compare the economic situations of various nations.

How to Calculate Gross National Income

A country’s total value of all goods and services produced, as well as its domestic and international sources of income, must be determined in order to compute the gross national income (GNI). Sources for this information include international organizations, government statistics offices, and other organizations.

The steps that follow can be used to calculate GNI if you have the necessary data:

  1. Calculate the country’s gross domestic product (GDP). The GDP of a country is used to determine the total value of all products and services produced within its borders.
  2. Identify the net foreign income. This is the difference between the income that domestic residents receive from foreign sources (such as foreign investments or profits created by domestic businesses) and the income that foreign residents receive from domestic sources (such as profits earned by foreign companies operating in the country).
  3. To calculate the GNI, add the GDP and net income from other countries.

For instance, a country’s GNI would be $1,100 billion if its GDP was $1,000 billion and its net foreign income was $100 billion.

There are other ways to determine GNI, including the Atlas method, the World Bank technique, and the IMF method. The individual data sources and calculations used will determine the exact methodology.

The Formula of Gross National Income (GNI)

The World Bank, the IMF, and the Atlas techniques are only a few of the methods used to calculate gross national income (GNI). The Atlas technique, which is based on the country’s currency’s market exchange rates, is the one that is most frequently utilized. Purchasing power parity (PPP) exchange rates, which account for regional variations in the cost of living, are used in both the World Bank and the IMF methods.

The formula for determining GNI using the Atlas approach is as follows:

GNI = GDP + Net income from abroad

Where:

GDP = Gross domestic product

Net income from abroad is the difference between domestic residents’ income from foreign sources (such as foreign investments or earnings made by domestic businesses) and foreign residents’ income from domestic sources (such as profits earned by foreign companies operating in the country).

The formula is slightly different from calculating GNI using the World Bank or IMF methods:

GNI = GDP + Net factor income from abroad

Where:

GDP = Gross domestic product

Net factor income from abroad is the difference between the income earned by foreign residents from domestic sources (such as profits made by foreign companies operating in the country) and the income earned by domestic residents from foreign sources (such as profits made by domestic companies operating abroad) adjusted for PPP exchange rates.

The specific method used to calculate GNI may differ based on the particular data sources and calculations employed; it is important to keep in mind that these formulas are mainly general recommendations.

Why Calculate a Country’s Gross National Income?

The gross national income (GNI) of a nation should be calculated for a number of reasons, including:

  1. Counting Economic Production: GNI, which accounts for both domestic and international sources of income, is a measurement of the total value of products and services produced in a nation. Governments and policymakers can gauge a nation’s economy’s size and health generally and monitor changes in economic production over time by calculating GNI.
  2. To Compare Financial Stability: GNI can be used to contrast the economic health of various nations. It is possible to compare GNI per capita (GNI divided by the population) in order to gain a sense of the typical standard of living in various nations and to spot any wealth inequalities.
  3. To Organize Nations According to Their Wealth Levels: GNI per capita is used by the World Bank and other international organizations to divide nations into income groups according to their degree of economic development. This can be helpful for figuring out economic development trends and the many kinds of aid that are accessible to nations.
  4. To Assess a Nation’s Capacity to Fund its Own Development: A country’s GNI is frequently used to assess its capacity to fund its own development and to decide whether it qualifies for particular types of international aid.

In general, determining a country’s GNI is an important step in understanding its economic trends and conditions as well as identifying opportunities for growth.

What Is Gross National Income per Country?

The term “GNI per country” refers to a nation’s gross national income (GNI). A country’s economic output is measured by its gross national income (GNI), which is calculated by adding the value of all goods and services produced there, including both domestic and international sources of income. GNI is frequently used to evaluate a nation’s economic progress and level of life as well as to compare the financial health of various nations.

Different methods, such as the Atlas approach, the World Bank method, and the IMF method, can be used to determine GNI per nation. The Atlas technique, which is based on the country’s currency’s market exchange rates, is the one that is most frequently utilized. Purchasing power parity (PPP) exchange rates, which account for regional variations in the cost of living, are used in both the World Bank and the IMF methods.

GNI per country can be measured as a per capita number or in absolute terms (for example, in US dollars) (i.e., per person). GNI per capita is frequently used to assess the economic health of various nations and divide them into income categories according to their level of economic development.

What Is Gross National Income per Capita?

GNI per capita, also known as gross national income per capita, is a measurement of the average income received by a nation’s citizens. It is determined by dividing the gross national income (GNI) by the population of the nation. A country’s economic output is measured by its gross national product (GNI), which is determined by adding the value of all goods and services produced there, including both domestic and international sources of income.

GNI per capita is often used to compare the economic health of various nations and to chart the evolution of a nation’s economic production over time. Additionally, the World Bank and other international organizations use it to divide nations into income categories according to the level of their economic growth.

GNI per capita can be calculated using a number of different methodologies, such as the Atlas, World Bank, and IMF methods. The Atlas technique, which is based on the country’s currency’s market exchange rates, is the one that is most frequently utilized. Purchasing power parity (PPP) exchange rates, which account for regional variations in the cost of living, are used in both the World Bank and the IMF methods.

GNI per capita is normally stated in annual terms and represented in US dollars or an equivalent currency. It is a crucial sign of a nation’s economic health and inhabitants’ standard of living.

Why is Gross National Income Important?

Gross national income (GNI) is an important economic statistic that is used to assess a nation’s living standards and level of economic progress. It is estimated by adding the value of all products, both domestic and foreign, that a nation produces.

The Gross National Income (GNI) is often used to compare the economic health of various nations and to monitor changes in a nation’s economic output over time. Additionally, the World Bank and other international organizations use it to divide nations into income categories according to the level of their economic growth.

Additionally, GNI is frequently used to assess a nation’s capacity to fund its own development and evaluate whether it qualifies for particular types of international aid. GNI per capita is used by the World Bank, for instance, to categorize nations into different income tiers and decide the kinds of aid that are accessible to them.

GNI is an important indicator of a nation’s strength and success economically and can offer crucial insights into a nation’s economic conditions and tendencies.

How does Gross National Income differ from GDP and GNP 

Gross National Income (GNI) is a metric used to determine how much money a nation’s citizens and businesses collectively make. It is comparable to the Gross Domestic Product (GDP), which counts all money made inside a nation’s boundaries. GNI and GDP differ primarily in that GNI cover money from international sources earned by citizens and enterprises, whereas GDP solely accounts for income produced domestically.

An additional indicator of a nation’s economic activity is its gross national product (GNP). It estimates the total value of goods and services produced by all enterprises and citizens of a nation, wherever they may be located. It is related to GDP. In contrast to GDP, which primarily accounts for output within a nation’s boundaries, GNP assesses the overall value of goods and services produced by a nation’s citizens and businesses, both domestic and foreign.

Although both principles stand for economic progress, there are some significant differences between them as will be discussed below.

  1. Area of operation: GDP represents the total value of finished products and services produced within a nation, whereas GNP represents the total value of goods and services produced both inside and outside the nation’s borders. It should be highlighted that values are expressed in monetary terms and should not be compared to one another because GNP is a more inclusive notion than GDP.
  2. Basis of calculation: Since it excludes money earned by India outside and all investments, GDP is determined based on the boundaries of the nation. The GNP, on the other hand, is determined based on citizenship, which implies that it is determined using all of the nation’s income produced by all residents, regardless of where they reside.
  3. Primary Focus: The domestic income produced is the primary focus of the GDP calculation. The primary focus of GNP, in contrast, is on the inhabitants’ and its people’s contributions to the nation’s economic growth.
  4. The scale of production: GDP operates on a domestic scale, where it is constrained by national borders. The gross national product, on the other hand, concentrates on the domestic monetary production made by all of the nation’s citizens.
  5. Calculation: Using a few simple formulas, it is simple to calculate both numbers, and it is also simple to recall. One of the components of GNP is GDP, and its calculation is provided below.

GDP = Consumption + Investment + Government spending + net export

GNP= GDP + NFIA

The balance of revenue to and from overseas is known as NFIA or Net Factor Income from Abroad. When foreign income exceeds foreign income, the value is positive; when foreign income exceeds foreign income, the value is negative. If foreign income from both sources is equal, the NFIA has no value.
 

Conclusion

A country’s economic production is measured by its gross national income (GNI), which is determined by aggregating the value of all the goods and services produced there, including both domestic and international sources of revenue. GNI is frequently used to assess a nation’s economic progress and level of life as well as to compare the financial health of various nations. Additionally, the World Bank and other international organizations use it to divide nations into income categories according to the level of their economic growth.

FAQs on Gross National Income

Q1. How is Gross National Income calculated?

Ans. There are various formulas for calculating GNI, such as the Atlas, World Bank, and IMF formulas. The Atlas technique, which is based on the country’s currency’s market exchange rates, is the one that is most frequently utilized. Purchasing power parity (PPP) exchange rates, which account for regional variations in the cost of living, are used in both the World Bank and the IMF methods.

Q2. What is Gross National Income per capita?

Ans. The GNI per capita measures a nation’s economic production per person. It is calculated by dividing the GNI of a country by its population. GNI per capita is frequently used as a stand-in for a country’s standard of living.

Q3. How is Gross National Income used to classify countries?

Ans. The World Bank and other international organizations use GNI to classify countries into income groups based on their economic development. These groups are typically referred to as low-income, lower-middle-income, upper-middle-income, and high-income.

Q4. How is GNI used to measure a country’s standard of living and economic development?

Ans. Gross national income (GNI), which indicates the overall amount of income a country’s economy generates, is frequently used as a gauge of that nation’s standard of living and level of economic growth. Higher GNI per capita (GNI divided by population) nations are regarded as being more economically developed and have higher standards of living.

Q5. How is Gross National Income affected by Exchange Rates?

Ans. Exchange rates, or the prices at which one currency can be exchanged for another, have an impact on the value of GNI. A nation’s GNI will rise if its currency’s value rises in comparison to other currencies. On the other hand, if the value of the currency falls, so does its GNI.

Q6. Why is Gross National Income important?

Ans. GNI is often used to measure a nation’s economic progress and standard of living. Additionally, the World Bank and other international organizations use it to divide nations into income categories according to the level of their economic growth.



Last Updated : 13 Jan, 2023
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