Modified Gross National Income (GNI) is an indicator designed specifically to measure the size of the Irish economy by excluding Globalisation effects.
As we saw, Gross Domestic Product (GDP) is a measure of the total economic activity in the country, but a lot of Ireland’s GDP includes profits that are generated here but then go straight out to the owners of companies abroad. Gross National Income differs from GDP by the net amount of incomes sent to or received from abroad, so it excludes the net profits of companies that have been sent abroad.
GNI, like GDP, is gross of Depreciation on Assets (that is, depreciation has not been deducted). Certain assets with high depreciation are held in Ireland by foreign-owned companies and add very significantly to our GNI. However, these assets are not always involved in production here, and if they are used in production, the profits all flow out to the foreign owner. The cost of depreciation on these assets is also borne by the owner overseas. For this reason, a measure that excluded this depreciation which does not relate to Irish income would be a better measure of the domestic economy.
Modified GNI subtracts depreciation on two kinds of assets in order to exclude globalisation effects: Intellectual property (IP) and leased aircraft. First, depreciation on Intellectual Property is very high, and, because it is intangible and easily moved, it can cause GNI to jump around just because it has been relocated. Furthermore, while some of the IP is used for activity in Ireland (such as patents needed for manufacturing pharmaceuticals), most of the IP belongs to Foreign-Owned Corporations and it has a disproportionately small effect on the domestic economy.
Second, modified GNI excludes depreciation on leased aircraft. Many of the world’s commercial airlines do not own all of the aeroplanes in their fleet, but instead they lease them from another company, that is, from an aircraft lessor. The largest international aircraft lessors are based in Ireland and lease the commercial planes that fly all over the world. Almost all of the lessors here are foreign owned and so the profit does not stay in the Irish economy. The planes themselves are owned in Ireland, even though they are manufactured abroad and generally operate overseas. So, for example, a plane might be manufactured in the USA, and go to operate routes in south-east Asia, but if it is leased from a company based here, it is part of Ireland’s stock of assets. These thousands of aeroplanes are all depreciating as they get older and this depreciation is part of Ireland’s GNI. However, the impact of these planes on domestic output and employment is limited. Thus, because leased aircraft add a good deal to GNI, but have a much lower impact on the domestic economy, modified GNI excludes their depreciation.
Finally, modified GNI excludes the income of Redomiciled PLCs. Gross National Income includes the profits that these companies receive from their subsidiaries abroad, and excludes the dividends that the company pays on to its shareholders. The difference between these two is their net income, and is quite substantial. It remains in the GNI estimate, even though these head offices have little interaction with the Irish economy. For this reason, modified GNI subtracts out the net income of Redomiciled PLCs.
To summarise then, modified GNI is:
If we then think back to How GDP is Calculated by the income method: what is left after these deductions? Modified GNI is largely made up of Compensation of Employees paid here to workers, Gross Operating Surplus and Gross Mixed Income of Irish-owned enterprises and Taxes received by the Government. All of these are available for spending and investment by domestic sectors, which makes Modified GNI a good indicator of the domestic economy.
Modified GNI is the same thing as GNI*. Sometimes people refer to 'GNI star' instead of 'Modified GNI' but it means the same thing.