WHAT COULD CAUSE A COUNTRY’S GNP TO BE GREATER THAN ITS GDP?

Abstract

This paper seeks to establish whether there exist factors that could render a country’s Gross National Product (GNP) greater than its Gross Domestic Product (GDP). It is not known whether a similar study has ever been previously undertaken as the literature search fails to discover any. Data of countries worldwide, to the extent of their availability, are drawn generally for years that fall within the 2000–2016 period for this study. The factors postulated as positive and negative determinants include the savings-investment gap, international reserves, technological sophistication, demography, unemployment, export orientation, income inequality, size of the primary commodities sector, financial repression, tax incidence and labor market regulations. Of these factors, the logit and probit regressions pursued reveal that only income inequality, size of the primary commodities sector and export orientation are the significant determinants. They work to dampen the probability of a country to register a GNP higher than GDP. A supplementary panel regression analysis also suggests these as factors that could reduce a country’s GNP to GDP ratio. In light of such findings, countries should address the problem of disparity in income distribution and promote indigenous ownerships in their primary commodities and export-oriented sectors if they are striving for an excess of GNP over GDP.