3.1.2—GDP and GNI

GDP measures production within borders; GNI measures income earned by residents, including net income from abroad.

Foreign-owned production can raise GDP while profits leave, so GDP and GNI diverge.

Identify location versus residency before choosing the measure.

A foreign factory adds host GDP; remitted profits reduce host GNI relative to GDP.

Neither measure is automatically better.

Use the expenditure approach: $GDP=C+I+G+(X-M)$. For example, if consumption is $400 billion, investment$90 billion, government spending $120 billion, exports$70 billion and imports $80 billion, nominal GDP is$400+90+120+(70-80)=600$billion. Then$GNI=GDP+\text{net primary income from abroad}$: if residents receive$25 billion from abroad and non-residents receive $35 billion domestically, net income from abroad is$-10$billion and GNI is$590$ billion. GDP uses the production location; GNI uses resident income.