What this lesson teaches
I can read real GDP, GNI, per-capita figures, unemployment rate, CPI, balance of trade, HDI and the Gini coefficient.
Syllabus 9570, 3.2.1(c). Standard of Living and Macroeconomics Indicators: Macroeconomic indicators; Indicators of economic performance include real Gross Domestic Product (GDP) or Gross National Income (GNI), real GDP or GNI per capita, unemployment rate, Consumer Price Index (CPI) and balance of trade; Human Development Index (HDI) as an indicator to reflect standard of living; Gini coefficient as an indicator to reflect income distribution
Make a guess
Many firms in Singapore are foreign-owned and send profits home. Is Singapore's GNI higher or lower than its GDP?
- Higher, because GNI includes everything GDP does plus more.
- The same, because both measure the same output.
- Lower, because profits paid abroad are not residents' income.
Show the answer
Lower, because profits paid abroad are not residents' income.
GDP counts everything produced in Singapore. GNI counts residents' income, so profits sent to foreign owners are taken out.
GDP measures output produced in a country; GNI measures income earned by its residents, wherever it is produced.
Gross domestic product (GDP) is the value of all final goods and services produced within a country in a year, whoever owns the firms.
Gross national income (GNI) is the income earned by a country's residents: GDP plus income they earn from abroad, minus income paid to foreigners.
In Singapore, many firms are foreign-owned and send profits home, so GNI is below GDP. GNI is a better guide to the income available to residents.
Neither measure is the same as the income households actually receive after tax.
- GDP
- Output produced in the country.
- GNI
- Income earned by residents: GDP + net income from abroad.
- Singapore
- GNI is below GDP.
Worked example: Output and income need not match
A foreign-owned factory in Singapore produces goods and sends part of its profits to its owners overseas. Singapore residents also earn income from investments abroad.
- The factory's whole output counts in Singapore's GDP.
- The profits sent abroad are not Singapore residents' income, so they are subtracted for GNI.
- Residents' overseas investment income is added for GNI.
- For Singapore, the outflows are larger, so GNI is below GDP.
Watch out for this
GDP and GNI are always the same.
They differ by net income from abroad. In an economy with lots of foreign investment, like Singapore, the gap can be large.
Check your understanding
A country produces $200 billion of output. Its citizens working overseas send home $15 billion in wages, and it pays $5 billion of interest to foreign lenders. What is its GNI?
- $210 billion, adding the wages and taking away the interest.
- $220 billion, adding both flows to the value of domestic output.
- $190 billion, taking away the wages and adding the interest.
Show the answer
$210 billion, adding the wages and taking away the interest.
Right. GNI = 200 + 15 - 5 = $210 billion. Net factor income from abroad is +$10 billion.