National income and welfare
GNP per person is often used as a measure of a person's welfare. Countries with higher GNP may score highly on other measures of welfare, such as life expectancy. However, there are serious limitations to the usefulness of GNP as a measure of welfare:
Measures of GNP typically exclude unpaid economic activity, most importantly domestic work such as childcare. This leads to distortions; for example, a paid childminder's income contributes to GNP, but an unpaid parent's time spent caring for children will not, even though they are both carrying out the same economic activity.
GNP takes no account of the inputs used to produce the output. For example, if everyone worked for twice the number of hours, then GNP might roughly double, but this does not necessarily mean that workers are better off as they would have less leisure time. Similarly, the impact of economic activity on the environment is not measured in calculating GNP.
Comparison of GNP from one country to another may be distorted by movements in exchange rates. Measuring national income at purchasing power parity may overcome this problem at the risk of overvaluing basic goods and services, for example subsistence farming.
GNP does not measure factors that affect quality of life, such as the quality of the environment (as distinct from the input value) and security from crime. This leads to distortions - for example, spending on cleaning up an oil spill is included in GNP, but the negative impact of the spill on well-being (e.g. loss of clean beaches) is not measured.
GNP is the mean wealth rather than median wealth. Countries with a skewed income distribution may have a relatively high per-capita GNP while the majority of its citizens have a relatively low level of income, due to concentration of wealth in the hands of a small fraction of the population.
Measures of GNP typically exclude unpaid economic activity, most importantly domestic work such as childcare. This leads to distortions; for example, a paid childminder's income contributes to GNP, but an unpaid parent's time spent caring for children will not, even though they are both carrying out the same economic activity.
GNP takes no account of the inputs used to produce the output. For example, if everyone worked for twice the number of hours, then GNP might roughly double, but this does not necessarily mean that workers are better off as they would have less leisure time. Similarly, the impact of economic activity on the environment is not measured in calculating GNP.
Comparison of GNP from one country to another may be distorted by movements in exchange rates. Measuring national income at purchasing power parity may overcome this problem at the risk of overvaluing basic goods and services, for example subsistence farming.
GNP does not measure factors that affect quality of life, such as the quality of the environment (as distinct from the input value) and security from crime. This leads to distortions - for example, spending on cleaning up an oil spill is included in GNP, but the negative impact of the spill on well-being (e.g. loss of clean beaches) is not measured.
GNP is the mean wealth rather than median wealth. Countries with a skewed income distribution may have a relatively high per-capita GNP while the majority of its citizens have a relatively low level of income, due to concentration of wealth in the hands of a small fraction of the population.