GDP counts what is produced inside a country's borders, regardless of who owns the factories. GNP counts what a country's residents produce, wherever they are in the world. The difference is subtle but important. If a Japanese company operates a factory in Thailand, that output counts in Thailand's GDP and in Japan's GNP. If a Thai worker sends money home from Japan, that is part of Thailand's GNP.

GNP was once the preferred measure. The United States used it until 1991, when it switched to GDP. The reason: GDP better captures activity within a country's borders, which is what matters for employment and tax revenue. GNP better captures income flowing to a country's citizens, which matters for living standards. Neither is perfect.

For most countries, the two numbers are close. They diverge in countries with large foreign operations or large diaspora workforces. Ireland's GDP is much larger than its GNP because so many multinational firms book profits there. The Philippines has a large GNP relative to GDP because millions of Filipinos work abroad and send money home.

GDP vs. GNP

• GDP: production within borders
• GNP: production by residents, anywhere
• GNP equals GDP plus net income from abroad
• United States switched from GNP to GDP in 1991
• Divergence is largest in small open economies