Gross National Income (GNI) Definition, With Real-World Example

What Is Gross National Income (GNI)?

Gross National Income, or GNI, refers to the total income earned by the people and businesses of a nation. It is calculated to estimate and compare the wealth in a country from year to year by adding the gross domestic product to the income that the nation receives from foreign sources.

The better-known and higher number GDP is a measurement of the total dollar value of all goods produced and services rendered within the nation at a given period in time – annually for most nations. The second not-as-familiar number is GNI, which stands for gross national income and is a replacement for GDP as a way of reflecting and tracking the wealth of a nation for many countries. It is generally considered the more accurate measure. The US government’s Bureau of Economic Affairs (BEA) measures GDP. It is the number that is reported regularly by the media as evidence of how healthy or unhealthy the US economy is compared to the previous fiscal year. How different are the two numbers? The second number is gross national product (GNP), a fairly broad measure of economic activity.

Key Takeaways

Gross national income (GNI) is the income earned by all people and businesses located in a country, no matter where the money was earned.

Because gross national income or GNI is a measure of wealth – one that calculates income in contrast with gross domestic product (GDP) which calculates output – the issue becomes complacency when a country becomes over-dependent on its natural resources.

GNI can be calculated by adding income from outside of a given country to it’s gross domestic product.

For many countries, there is little difference between GNI and GDP.

Nations with large amounts of foreign direct investment, foreign corporate presence or foreign aid will have a large gap between GNI and GDP

Understanding Gross National Income (GNI)

GNI accounts for the income that a country’s people and businesses earned anywhere in the world, including investment income, as well as money transfers from overseas, including foreign investment and aid for economic development.

Residence — not citizenship — is the defining attribute of nationality for these purposes, provided the income earned by residents is spent in the country in question. GNI has been embraced in place of GDP in the calculations by bodies such as the World Bank, and it also underlies the contribution level assessed for member states by the European Union.

To derive GNI, the compensation paid by foreign firms to their resident employees is added to GDP, while compensation paid by resident firms to their overseas employees is subtracted. Income generated overseas by the domestic owners of capital and labour – for example, from equity or bonds held abroad – is also added, as is income received by domestic owners from their property, such as leases, copyrights, or royalties; at the same time, the income foreign owners of domestic capital and labour receive from a domestic employer is subtracted. Finally, product and import taxes that aren’t already accounted for in the GDP are added to GNI, while subsidies are deducted.

To go from a country’s GDP to GNI, you need to add three items to the former:

Foreign income paid to resident employees

Foreign income paid to residential property owners and investors

Net taxes minus subsidies receivable on production and imports

Real-World Examples of GNI

For a host of countries, GDP differs only modestly with respect to GNI. In most of these nations, the difference between income received by the country and payments made to the rest of the world is not large. The amount that the US received from the rest of the world was about $23.6 trillion. This amount happens to be remarkably close to the level of US GDI in 2021 which was $23.3 trillion.

However, for some countries, this difference is substantial, meaning that it can be many multiples of GDP if a country is the recipient of a lot of foreign aid (or foreign investment). This is the case of Bangladesh whose 2021 GNI was recorded at $438 billion, more than their GDP of $416 billion. It can be much lower if foreigners control a large portion of production, as is the case with an economically small country: the low-tax jurisdiction of Ireland, where the European and US subsidiaries of many multinational companies formally reside. Their 2021 GNI was recorded as a little over $382 billion, while their GDP for the same period was $504 billion.

GDP vs. GNI vs. GNP

GNP is by far the least used of the three measures, probably because it’s the most misleading – if a nation’s richest citizens routinely place much of their wealth outside its borders, for instance, heaping G nation’s apparent prosperity.

In fact, because of today’s mobile population and global commerce, GNI is probably the most reliable measure of national wealth we have.

GDP stands for gross domestic product and it is the total market value of all the finished goods and services produced during a specific time (usually a year) inside a country’s borders.

GNI is the income received from within a country’s borders and from activities abroad. The total income of this country includes income earned by residents of this country who are living and working abroad as well as by citizens of other countries living and working in this country.

GNP, by contrast, includes the income of everyone and every legal business within a country’s boundaries, whether the money flows back to the country or is spent abroad, and it also adds in a nation’s foreign subsidies and taxes.

Image by Sabrina Jiang © Investopedia 2020

How Does GNI Differ From GDP and GNP?

Gross national income (GNI) is calculated by adding up the income that a country’s people and businesses earn, whether at home or abroad (including investment income), and all money received through foreign investment and economic development aid.

GDP is the total market value of all final goods and services produced within a country over a given period of time; GNP equals the income of all of a country’s residents and businesses (whether that income flows back into the country or is spent abroad), plus or minus subsidies and taxes derived from foreign sources.

How Is GNI Calculated?

Like GDP, GNI is calculated starting with the total value of a country’s production, net of what was consumed along the way. But to get GNI, we add compensation resident employees of foreign firms and income from overseas property owned by residents to GDP. We subtract compensation by resident firms to overseas employees and income generated in the rest of the world by foreign owners of domestic property. We then add product and import taxes that aren’t already taken into account in GDP; and subtract subsidies.

When Is GNI Useful?

The difference between GDP and GNI for the US and many other countries turns out to be negligible. For many countries, on the other hand, it turns out to be rather large. GNI can be considerably higher than GDP of you earn significant amounts of income from abroad, as for example happens in East Timor. Conversely it can be considerably lower if a substantial portion of a country’s production is owned by foreigners, as is the case in a low tax country such as Ireland, where the European and US subsidiaries of a number of big multinational companies officially reside.

The Bottom Line

Gross national income (GNI) is the total income a country’s people and businesses receive, irrespective of where the income came from. It is a measure of national wealth, and so it can be used as an alternative to gross domestic product (GDP). To find GNI, take the country’s GDP and add income received from other countries.

In most countries it is very similar but if a country is receiving significant amounts of foreign investment or foreign aid flows then GNI might be far higher than GDP.