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Economic News, Data and Analysis

The World Cup and the Economy

Congratulations to the French soccer team who, on the head of Zinedine
Zidane, won their first World Cup this past Sunday. Ball 

While watching the celebrations on the streets of Paris, I began to
wonder if the jubilance would spread from the sports arena into other aspects
of French life such as, well, the economy. The French economy has been
experiencing only moderate growth and double digit inflation over the past
couple of years. Could the soccer victory bring them out of the slump?

To answer my curiosity, I thought I would take a look at how the economies
of past winners have performed to see if there is a “Cup Effect”. 
Table 1 below shows the GDP growth for the Champion country, the runner-up,
and the host nation, both before and after the World Cup, for the years
from 1954 to 1990.

 

































































































































































GDP Growth
  Champion Pre- Post- 2nd Place Pre- Post- Host Pre- Post-
1954 Germany 7.1 9.1 Hungary NA   NA Switzerland 4.0 5.5
1958 Brazil 5.7 3.3 Sweden 1.9 4.0 Sweden 1.9 4.0
1962 Brazil 3.9 -0.8 Czech. -0.8 -0.2 Chile 3.2 1.8
1966 England 1.4 3.0 Germany 2.9 2.4 England 1.4 3.0
1970 Brazil 6.5 9.7 Italy 5.8 1.1 Mexico 2.9 5.2
1974 Germany 9.5 4.7 Netherlands 3.6 1.6 Germany 9.5 4.7
1978 Argentina 0.0 5.6 Netherlands 1.9 0.8 Argentina 0.0 5.6
1982 Italy -0.3 1.5 Germany -1.1 2.7 Spain -0.6 0.5
1986 Argentina -0.9 -2.4 Germany 2.2 2.4 Mexico -2.2 0.6
1990 Germany 3.3 1.3 Argentina NA  NA  Italy 2.4 0.9
Mean 3.6
3.5

2.1 1.8 2.2 3.2
Median 3.6 3.1 2.0 2.0 2.1 3.5

 

Table 1. Real per Capita GDP growth, Annual Percentage Rate, 2 years
pre- and post World Cup. Source Penn
World Tables 5.6
.
Increases are marked in red 

 

No “Champion” effect.

At this level of analysis there doesn’t seem to be a World Cup effect
for the cup winner or runner up. In half of the cases the GDP growth rate
rose for the winners, but in the other half it fell. This probably isn’t
the best comparison to make – a better “control group” might be other countries
in the region. A more sophisticated test of the world cup effect would
take into account myriad factors affecting the country’s economic performance.
(Anyone want to run a VAR and test for structural breaks at the Cup dates?)

Maybe “Host Country” effect?

While there is no evidence of a Champion effect, there may be a boost
to the economy from hosting the Cup. In 7 of the 10 World Cups analyzed,
output growth increased in the years following the Cup. On average, this
lead to a 1 percentage point increase in the growth rate when compared
to the two years prior to the event.

There seem to be two plausible explanations for this effect. First,
hosting the cup means an influx of tourists and hence an influx of tourism
money. Second, when a country hosts the World Cup, there is typically a
boom in new construction in preparation for the games (e.g. France built
a new stadium and renovated others).

The last time the host country won the championship (Argentina, 1978)
the economy’s growth rate jumped from a stand still to a healthy 5.6%.
Let’s hope France can do the same.

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