March 1, 2004

Wrong Data Leads to Erroneous Conclusion

Contact: Debi Kar, 202-387-5080

A new study from the Center for Economic & Policy Research (CEPR), "NAFTA at Ten: The Recount" by Mark Weisbrot, David Rosnick, and Dean Baker, finds serious flaws in the World Bank's study of NAFTA, released in December 2003 on the 10th anniversary of the trade agreement, therefore calling into question the Bank's conclusion that NAFTA increased GDP growth in Mexico.

The World Bank recently released a study, marking the tenth anniversary of the NAFTA agreement, that focused on the agreement's impact on Mexico's development. This study included a widely cited section that tested the effect that NAFTA had on Mexico's per capita GDP growth. The test used in the study found that NAFTA increased Mexico's per capita GDP by an extra 4-5 percentage points by the end of 2002.

This paper examines the basis for this result. It shows that the per capita GDP data used for the World Bank's test is widely out of line with per capita GDP data from all authoritative sources, including the Penn World Tables, the OECD, and the International Monetary Fund's World Economic Outlook. The per capita GDP ratios used in the World Bank study imply that the United States had a per capita GDP of nearly $21,000 in 2000. This is approximately one-third below the level estimated by these other sources, which place the United States' per capita GDP in 2000 at no less than $31,000.

When data from these other sources is used in the same regression that appears in the World Bank study, the result is reversed. In nearly every specification, the regression results indicate that NAFTA slowed the rate of growth in Mexico.

While this test cannot be viewed as conclusive, it is worth noting that when generally accepted data are used in the World Bank's test, the results show that NAFTA reduced growth in Mexico -- the opposite of the results obtained by the World Bank study.