What’s the Difference Between GDP, GNI and NNI?
Learn the difference between GDP, GNI and NNI: domestic production, residents’ income and depreciation, with a short A Level Economics worked example.
GDP measures production within a country’s borders; GNI measures income earned by its residents; NNI is GNI after allowing for depreciation. The key differences are where production happens, who earns the income, and whether worn-out capital has been deducted.
What changes from GDP to GNI?
Gross Domestic Product (GDP) is the value of final goods and services produced within a country during a period. Domestic means the location of production matters, regardless of who owns the businesses producing it.
Gross National Income (GNI) starts with GDP, then adds income residents earn from abroad and subtracts income paid to non-residents. This difference is called net primary income from abroad. For example, profits earned overseas by a resident-owned business add to GNI, while profits earned domestically and sent to foreign owners reduce it.
These measures answer different questions. If a foreign-owned factory produces goods locally, its output counts in local GDP because production takes place inside the border. Profits sent to its overseas owners then reduce local GNI through net primary income. By contrast, income received by residents from work or investments abroad increases GNI without adding to domestic GDP.
GNI=GDP+net primary income from abroad\text{GNI}=\text{GDP}+\text{net primary income from abroad}GNI=GDP+net primary income from abroadWhat changes from GNI to NNI?
Net National Income (NNI) deducts depreciation from GNI. Depreciation is the loss in value of capital goods, such as machinery, as they wear out or become obsolete. Gross includes this loss; net allows for it.
NNI=GNI−depreciation\text{NNI}=\text{GNI}-\text{depreciation}NNI=GNI−depreciationSuppose GDP is 500500500 billion, residents earn 404040 billion from abroad, non-residents earn 252525 billion domestically, and depreciation is 202020 billion. Assuming all figures use the same price basis, GNI is 500+40−25=515500+40-25=515500+40−25=515 billion and NNI is 515−20=495515-20=495515−20=495 billion.
Exam mistake to avoid: do not subtract depreciation when moving from GDP to GNI. First adjust for income flowing across borders; then subtract depreciation to get NNI.
Cambridge International A Level Economics syllabus focus: National income statistics, 4.1.2 (GDP, GNI and NNI) and 4.1.4 (gross-to-net adjustment).
