Ahead of today’s opening game of the football World Cup finals there have been plenty of estimates of its impact on the South African economy produced, with some suggesting a significant (>0.5ppts) boost to GDP growth this year. Certainly, armchair empiricism might suggest that hosting a World Cup final competition should boost spending as stadia and transport infrastructure are built ahead of the event and an influx of visitors boosts spending on hotels, etc. After the World Cup this stimulus disappears and activity should fall. Thus we might expect GDP growth to be higher in the years just preceding and including the World cup than immediately after it.

Yet other armchair empiricists might contest this. Spending on transport infrastructure and stadia may simply be diverted from other uses. Moreover, the number of visitors might be too small to have an impact on the economy or the presence of football supporters might deter other visitors (as, indeed, appears to be happening in South Africa at present). So what do previous tournaments tell us about the impact on growth?

Since 1930 there have been 18 World Cup competitions, with 15 host countries. Using numerous sources we have constructed real GDP growth rates for the year before, the year of and the year following each World Cup.

Real GDP growth around World Cups

Source: Daiwa Capital Markets Europe Ltd.

As can be seen from the table, there is little difference between the average GDP growth in the year before a World Cup and the year of the World Cup itself, with growth averaging around 3¼%Y/Y. In the subsequent year the average growth rate falls to 2.6%. On the face of it, this suggests that the presence of the World Cup boosts GDP growth by about ½%Y/Y.

GDP growth of World Cup hosts

Source: Various and Daiwa Capital Markets Europe Ltd.

However, as the chart shows, there is at least one outlier in the data series. Excluding this outlier (Uruguay in 1930) fundamentally changes the result, suggesting that the World Cup actually depresses GDP growth by about ¾%Y/Y in the year it is held, with GDP recovering by about 1% in the following year.

More fundamentally, however, the differences in the GDP growth rates across the years are statistically indistinguishable whether or not Uruguay’s 1930 competition is included.  And even examining those countries that have held the tournament more than once fails to uncover any pattern in GDP performance.

So, despite being the “World’s most widely viewed sporting event”, the evidence suggests that the World Cup’s impact on the host country’s economy is too small to over-ride the other economic forces at work. As such, while South Africa is likely to reap plenty of publicity over the coming month, the evidence from previous tournaments suggests that the tournament will do nothing to boost growth, and hence nothing to tackle the enormous social problems that continue to confront the country.

 
Don Egginton, Head of Long-term Analysis and Modelling

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