What Is Gross National Income (GNI)? Comparing GNI and GDP

GNI reflects the standard of living and economic strength of a country’s residents. If a country receives significant income from abroad—such as remittances or international investments-its GNI will exceed its GDP. Conversely, if a country pays out large amounts of earnings to foreign entities (e.g., multinational company profits), its GNI will be lower than its GDP.

How Is GNI Calculated?

GNI’s calculation is more complex than GDP because it incorporates international income flows. The formula is:

GNI = GDP + Income from Abroad – Income Paid to Foreigners

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• GDP (Gross Domestic Product): The total value of all goods and services produced domestically in one year.
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• Income from Abroad: Earnings received by residents and businesses from overseas investments, wages, and other economic activities.
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• Income Paid to Foreigners: Earnings that foreign individuals or companies obtain from operations within the country and transfer abroad.

By adding foreign income and subtracting income paid to foreigners, GNI offers a fuller picture of a nation’s economic capacity compared to GDP alone.

The Importance of GNI

GNI is essential for assessing national economic strength and citizens’ prosperity.

A high GNI indicates a country with strong domestic activity and significant international income—common in nations with major foreign investments or remittance inflows.

GNI helps economists and governments evaluate how dependent the economy is on foreign income. It also serves as a key metric for international comparisons. The World Bank and other organizations frequently use GNI to classify countries by income per capita, aiding in development assessments and aid allocation.

Unlike GDP, GNI measures not only domestic economic strength but also the profitability of international economic activities.

Vietnam’s GNI Per Capita Over the Years

Image 3 Caption: Vietnam’s GNI per capita over time (World Bank data).

Vietnam’s GNI per capita by World Bank data:

1990: USD 130

1995: USD 250

2000: USD 380

2005: USD 640

2010: USD 1,370

2015: USD 2,480

2020: USD 3,450

2023: USD 4,180

1990s: During the economic transition from a planned to a market economy, GNI per capita remained low, just a few hundred dollars annually.

2000–2010: Thanks to reform policies and global integration, Vietnam experienced rapid growth; per capita GNI rose to USD 1,000–2,000 by decade’s end.

2010–2020: Growth continued strongly, with per capita GNI reaching USD 3,500–4,000 by decade’s conclusion.

2020–2023: Despite the initial COVID‑19 shock, Vietnam’s economy remained resilient, with per capita GNI at USD 4,180 in 2023. It could exceed USD 4,500 in 2024 if growth remains steady.

Comparing GNI and GDP

Both GNI and GDP are essential economic indicators, but they differ in purpose and calculation:

Definition:

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• GDP: Measures the total value of all final goods and services produced within a country’s borders in a given period, including both domestic and foreign company output.
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• GNI: Measures GDP plus net income from abroad (investment income and remittances), minus income earned by non‑residents domestically.

Formula Comparison:

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• GDP = Consumption + Investment + Government Spending + (Exports − Imports)
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• GNI = GDP + Net Foreign

Income If a country hosts many foreign companies, GDP may exceed GNI due to profit repatriation. Conversely, nations with global investments or large diaspora remittances can have GNI higher than GDP.

When to Use GNI vs. GDP

When to Use GDP

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• Ideal for assessing domestic economic health, tracking growth trajectory, and comparing economic scale.
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• Used by governments and policymakers to gauge economic performance and frame fiscal/monetary strategies.

When to Use GNI

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• Best for understanding total national income, including international earnings.
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• Useful for comparing living standards across countries—especially those with significant foreign income or remittances.

By using GDP and GNI together, decision-makers gain a fuller picture of economic activity and welfare—helping guide investment strategies and policy development. For more financial, economic, and investment insights, visit Xauxi.com for daily updates.