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Gross national income per capita

By OECD on Apr 13, 2007
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National income per capita

While per capita gross domestic product is the indicator most commonly used to compare income levels two other measures are preferred by many analysts. These are per capita gross national income (GNI) and net national income (NNI).

Definition

GNI is defined as GDP plus net receipts from abroad of wages and salaries and of property income.

Wages and salaries from abroad are those that are earned by residents, that is, by persons who essentially live and consume inside the economic territory but work abroad (this happens in border areas on a regular basis) or for persons that live and work abroad for only short periods (seasonal workers) and whose centre of economic interest thus remains in their home country. Guest-workers and other migrant workers who live abroad for twelve months or more are considered to be resident in the country where they are working. Such persons may send part of their earnings to relatives at home, but these remittances are treated as transfers between resident and non-resident households and do not enter into net receipts from abroad of wages and salaries.

Property income from abroad includes interest, dividends and all or part of the retained earnings of foreign enterprises owned fully or in part by residents. In most countries, net receipts of property income account for most of the difference between GDP and GNI. Note that retained earnings of foreign enterprises owned by residents may not actually return to the residents concerned, and, in some countries, there are restrictions on the repatriation of profits. Receipt of retained earnings is an imputation, and, since there is no actual transaction, it is necessary to impute an outflow of the same amount. The imputed outflow is treated as a capital transaction (a reinvestment of earnings abroad) and not as an outflow of property income. Countries with large stocks of outward foreign direct investment may be shown as having large receipts of property income from abroad and therefore high GNI even though much of the property income may never actually be returned to the country.

Depreciation, which is deducted from GNI to obtain NNI, is the decline in the market value of fixed capital assets – dwellings, buildings, machinery, transport equipment and physical infrastructure – through wear and tear and obsolescence.

Comparability

Both measures are compiled according to the definitions of the 1993 System of National Accounts. There are, however, practical difficulties in the measurement both of international flows of wages and salaries and property income and of depreciation. It is for that reason that GDP per capita is the most widely used indicator of income or welfare, even though it is theoretically inferior to either GNI or NNI.

Long-term trends

In the chart, countries are ranked according to GNI, which is usually around 16 or 17% higher than NNI. Note that the country rankings are not much affected by the choice of income measure; countries that would be more than one place lower in the ranking if NNI were used are Japan, and Denmark, and those that would be more than one place higher in the ranking are Greece, Ireland, Sweden and the United Kingdom.

Over the period shown, the growth of per capita GNI mirrors that of per capita GDP, with Ireland, Norway, Korea and Poland at the top end and Germany, Italy and Japan with the lowest rates of growth.