The Formula of Gross National Income (GNI)
The World Bank, the IMF, and the Atlas techniques are only a few of the methods used to calculate gross national income (GNI). The Atlas technique, which is based on the country’s currency’s market exchange rates, is the one that is most frequently utilized. Purchasing power parity (PPP) exchange rates, which account for regional variations in the cost of living, are used in both the World Bank and the IMF methods.
The formula for determining GNI using the Atlas approach is as follows:
GNI = GDP + Net income from abroad
Where:
GDP = Gross domestic product
Net income from abroad is the difference between domestic residents’ income from foreign sources (such as foreign investments or earnings made by domestic businesses) and foreign residents’ income from domestic sources (such as profits earned by foreign companies operating in the country).
The formula is slightly different from calculating GNI using the World Bank or IMF methods:
GNI = GDP + Net factor income from abroad
Where:
GDP = Gross domestic product
Net factor income from abroad is the difference between the income earned by foreign residents from domestic sources (such as profits made by foreign companies operating in the country) and the income earned by domestic residents from foreign sources (such as profits made by domestic companies operating abroad) adjusted for PPP exchange rates.
The specific method used to calculate GNI may differ based on the particular data sources and calculations employed; it is important to keep in mind that these formulas are mainly general recommendations.
What Is Gross National Income (GNI)? Definition and Examples
A country’s economic production is measured by its gross national income (GNI), which is calculated by adding the values of all the goods and services it provides, including both domestic and international sources of revenue. Gross domestic product (GDP), which measures a nation’s internal economic output, and GNI are related concepts. GNI, however, takes into account revenue from international sources, including overseas earnings made by domestic businesses or foreign investments.
GNI is often used to measure a nation’s economic progress and level of life as well as to compare the financial health of various nations. Additionally, the World Bank and other international organizations use it to divide nations into income categories according to the level of their economic growth.
It can be calculated using a number of different methodologies, such as the Atlas, World Bank, and IMF approaches. The Atlas technique, which is based on the country’s currency’s market exchange rates, is the one that is most frequently utilized. Purchasing power parity (PPP) exchange rates, which account for regional variations in the cost of living, are used in both the World Bank and the IMF methods.