GNI per capita can be adjusted by to account for differences in the cost of living
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Gross National Income (GNI) is a measurement of a country's income. It includes all the income earned by a country's residents, businesses, and earnings from foreign sources. Income is defined as all employee compensation plus investment profits. Show
GNI also includes any product taxes not already counted, minus subsidies. It only counts income earned from residents who work abroad and does not count income earned by foreigners located in the country. Like GDP, it also does not include the shadow or black economy. While GNI can be used for a few purposes, it is mostly used to classify and group economies using purchasing power parity and the per capita method to determine different countries' standard of living to each other.
Difference Between GNI and GDPGross domestic product measures the value of goods and services produced within a country; the measurement includes national output, expenditures, and income. GNI equals GDP plus wages, salaries, and property income of the country's residents earned abroad and at home. It also includes net taxes and subsidies receivable from abroad, according to the Organization for Economic Cooperation and Development. Difference Between GNI and GNPGross national product includes the earnings from all assets owned by residents. It even includes earnings that don't flow back into the country. It then omits the earnings of all foreigners living in the country, even if they spend it within the country. GNP only reports how much is earned by the country's citizens and businesses, no matter where it is spent in the world. The chart provides a visual of what is and isn't included in GDP, GNI, and GNP.
Calculating the MeasurementsTo put things in a simpler form, here are the formulas to calculate GDP, GNI, and GDP. The components of GDP are:
GDP is calculated as: GDP = C + I + G + X GNI uses GDP and two different types of income circumstances:
This gives the formula: GNI = GDP + [ ( A ) – ( B ) ] To calculate GNP, GDP is used again, with two types of income that are different from those used to calculate GNI:
The formula then becomes: GNP = GDP + (C – D) Why These Differences Are ImportantIn many emerging markets, such as Mexico, residents move to other countries where they can earn a better living. Many workers that do this send money back to their families in their home county. There is enough of this type of income that it influences economic metrics. It's counted in GNI and GNP but not in GDP. As a result, comparisons of GDP by country will understate the size of these countries' economies because of the missing financial data (known as worker's remittances)—remittances count for close to 6% of lower-income countries' GDP. GNI as a Comparison ToolThe World Bank provides GNI data for all countries. To compare incomes among nations, it removes the effects of currency exchange rates by converting everything to the U.S. dollar using purchasing power parity (PPP). The problem with the PPP method, though, is that it converts all goods and services in a country to what it would cost in the United States. The method works well for products like McDonald's hamburgers that are sold across the world—but does a poor job of estimating the value of goods not sold in America. GNI per capita is a measurement of income to the number of people in the country. It compares the GNI of countries with different population sizes and standards of living. However, GNI does not account for costs of living or subsistence levels—which means that while providing good information about the income levels of the people in a country, it should be used in context with other measurements to grasp a full picture of the income and purchasing power a country's citizens have. Frequently Asked Questions (FAQs)Which country has the lowest gross national income?The countries with the lowest GNI are Burundi, the Central African Republic, South Sudan, and the Democratic Republic of the Congo. These rankings are based on PPP-adjusted, per-capita figures. How do you find gross national income?What determines GNI per capita?GNI per capita is a way to look at the country's income divided by its population, and it is the clearest way to compare income per person in a country.
How does GNI measure standard of living?GNI calculates the total income earned by a nation's people and businesses, including investment income, regardless of where it was earned. It also covers money received from abroad such as foreign investment and economic development aid.
How does GNI affect the standard of living?GNI per capita can raise a country's standard of living. That's because many citizens live in other countries to get better jobs. They also remit part of their wages back to their families at home. The United Nations uses the Human Development Index.
How is GNI calculated?Gross national income (GNI) is defined as gross domestic product, plus net receipts from abroad of compensation of employees, property income and net taxes less subsidies on production.
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