Football is actually coming home. Brazil is the spiritual home of the ‘beautiful game’. It is the only country to have competed in all 20 World Cup tournaments, it has won the tournament a record five times, and it is the only country to have won the tournament ‘away’ (Ponzo and Scoppa 2014).1 Brazilians worship football. As in all previous World Cups, the country will stop when the Seleção plays. Unlike all other Cups, however, this time there may be protests. These protests are driven by the mismanagement that plagued preparations and reinforces expectations that the promised long-term and widespread economic benefits from hosting the Cup will be small. True football fans around the world will hope the Seleção wins at home, but economists, from the evidence so far, suspect that the country missed a golden opportunity to address some glaring problems – especially concerning urban transportation.
Why do countries compete to host the World Cup?
The costs, revenues, and popularity of mega-events such as the Olympic Games and the World Cup rocketed in the last three decades, largely thanks to globalisation (Milanovic 2005).2 Does it pay to host such events? The answer from the academic literature is that the economic impact is limited. The costs of mega-events are small as a percentage of GDP, and benefits are often unimpressive (Szymanski 2002, Baade and Matheson 2004).
What if benefits are mostly indirect? Rose and Spiegel (2011) find econometric support for an Olympic Effect: “countries which have hosted the games seem to have exports over 20% higher, ceteris paribus. Other mega-events such as the World Cup also have large positive effects on trade” (p. 653). Interestingly, these benefits are not restricted to countries actually hosting, but extends to all those that bid to host.
Brückner and Pappa (2011) propose anticipation effects as another explanation for the economic benefits from mega-events. They identify substantial differences among the Olympic Games, World Cup, and International Expositions. They find that countries that hosted International Expos “experienced a significant increase in their real per capita GDP growth before the hosting of the event, but this effect is small and transitory when compared to the one generated by the Olympics. The hosting of the World Cup, on the other hand, generates negative effects on output growth and only positive effects on government spending growth.” (p. 7).
What if benefits from the World Cup are in terms of subjective wellbeing (or happiness)? Kavetsos and Szymanski (2010) focus on the success of national teams in the summer Olympics, the World Cup, and the Euros. They find limited support for the hypothesis that winning tournaments or medals has a significant effect on subjective wellbeing. Yet they report that hosting mega-events (in particular football tournaments) is associated with a temporary increase in happiness.
In short, although one can find many very large estimates of the economic benefits from hosting mega-events (often calculated by or for countries that are considering bidding), economic research finds they are likely to be modest. It is difficult to find support for significant growth effects, although exports and life satisfaction mechanisms are promising. The difficulties in disentangling the effects from hosting from those of bidding suggest these small benefits may stem mostly from the preparatory work bidding requires (because this allows candidate countries to identify major bottlenecks, infrastructure deficiencies, and investment opportunities).
Missing scholarship: The political economy of the World Cup
After almost two decades of macroeconomic stability, reforms, democracy, and shrinking income inequality, few doubt Brazil has changed. In this context, the political protests of June 2013 were unexpected. Corruption, ineptitude, and elections seemed to be the main causes, and I cautioned that those protests “may well continue” (Campos 2013). One year later, protests have indeed continued, but their reasons are now less diffuse – they are against the mismanagement and perceived corruption surrounding the World Cup both by the Brazilian authorities and by FIFA (see Becker 2013.) The hope is that the Seleção wins the tournament, but the fear is that Brazil lost this World Cup.
A surprising omission in the academic literature is the study of rent-seeking or corruption as an important factor driving countries to compete vigorously to host events that they suspect cannot generate substantial or sufficiently widespread economic benefits. The hypothesis that rent-seeking may explain bidding behaviour – although probably blatant to Brazilian protesters – has received little attention in the economics literature, despite suitable theoretical models (Robinson and Torvik 2005).3 A political economy analysis of rent-seeking may see bidding in a different light – firms collect rents and politicians collect bribes and/or ‘unpredicted’ campaign contributions.
Is there any support for this hypothesis? After winning the right to host, governments submit revised plans for stadia and the set of attendant infrastructure projects that fulfil FIFA requirements (hotels, airports, public transportation, public safety measures, etc.). The Brazilian government publishes detailed information for the full set of projects in terms of their progress and costs.4 Yet this is published with a time lag and, regarding costs, most figures are understandably qualified as preliminary.
One month before kick-off, Folha de Sao Paulo, a reputable Brazilian national newspaper, reported the results of its readiness assessment of the 12 host cities. Stadia, urban transport, international transportation, public safety, and telecommunications projects were classified in four categories: “completed”, “incomplete but will be ready for World Cup”, “will be ready but only after the World Cup”, and “abandoned”.5 Although the majority of stadia (9 out of 12) were judged to be “completed”, the share of “completed” projects ranges from 70% for public safety to 50% for international transportation and telecommunications, to a paltry 10% for urban transport.6
Does this variation in project completion relate to the level of transparency of government accounts in the state and city governments where these infrastructure works are being carried out? Figure 1 plots one index of transparency (normalised to a 0–10 scale, with higher values indicating more transparency in publishing and documenting government finances) and the percentage of projects that are “completed” and “expected to be ready by the World Cup” (linear trend is added).7 A weak positive relation emerges – the share of completed projects is smaller when carried out in states that are less transparent with their government accounts.
Figure 1. Percentage of World Cup 2014 projects expected to be completed in time and state-level index of transparency of government accounts
Needless to say, this is neither a conclusion nor a result, as the data is too weak. Yet it suggests a political-economy line of inquiry that has received little attention so far. Researchers puzzle over why countries spend so much money, time, energy, and resources competing to host mega-events when evidence shows small and localised economic returns, and apparently short-lived gains in subjective wellbeing. This new hypothesis is that interest groups may drive this process in the expectation of capturing rents.
Why should all future World Cups be staged in poor countries?
Does all this imply, as many currently suggest, that only rich countries should host mega-events? Definitely not. In terms of potential economic benefits, there is a crucial difference between the Olympic Games and the World Cup – one is awarded to a host city, the other to a host country. So why should poorer countries host the World Cup and rich countries host the Olympics? As FIFA currently requires at least eight host cities, improvements in infrastructure are expected. Recent research shows that returns to transportation infrastructure are high in poor countries (Donaldson, forthcoming). With support from the international community, careful planning (involving local communities), transparency, and anti-corruption, foreign aid can be used to fund the needed infrastructure projects. The matter of the scale of required stadia can be addressed by staging the tournament in two or three neighbouring countries.
Baade, Robert and Victor Matheson (2004), “The Quest for the Cup: Assessing the Economic Impact of the World Cup”, Regional Studies, 38(4): 343–354.
Becker, Ryan (2013), “World Cup 2026 Now Accepting Bribes: A Fundamental Transformation of FIFA’s World Cup Bid Process”, International Sports Law Journal, 13(1–2): 132–147.
Berlinschi, Ruxanda, Jeroen Schokkaert, and Johan Swinnen (2013), “When Drains and Gains Coincide: Migration and International Football Performance”, Labour Economics, 21: 1–14.
Brückner, Markus and Evi Pappa (2011), “For an Olive Wreath? Olympic Games and Anticipation Effects in Macroeconomics”, CEPR Discussion Paper 8516.
Campos, Nauro (2013), “What drives protests in Brazil? Corruption, ineptitude and elections”, VoxEU.org, 23 July.
Donaldson, Dave (forthcoming), “Railroads of the Raj: Estimating the Impact of Transportation Infrastructure”, The American Economic Review.
Kavetsos, Georgios and Stefan Szymanski (2010), “National Well-being and International Sports Events”, Journal of Economic Psychology, 31(2): 158–171.
Milanovic, Branko (2005), “Globalization and Goals: Does Soccer Show the Way?”, Review of International Political Economy, 12(5): 829–850.
Ponzo, Michela and Vincenzo Scoppa (2014), “Does the Home Advantage Depend on Crowd Support? Evidence from Same-Stadium Derbies”, IZA Discussion Paper 8105.
Reade, James and Sachiko Akie (2013), “Using Forecasting to Detect Corruption in International Football”, University of Reading, mimeo.
Robinson, James and Ragnar Torvik (2005), “White Elephants”, Journal of Public Economics, 89: 197–210.
Rose, Andrew and Mark Spiegel (2011), “The Olympic Effect”, Economic Journal, 121: 652–677.
Szymanski, Stefan (2002), “The Economic Impact of the World Cup”, World Economy, 3(1): 169–177.
1 In terms of World Cup football, home and away are defined in continental terms (the Americas and Europe). The third category, ‘neutral’, accounts for wins in Japan and South Africa.
2 Migration is another interesting aspect of the relationship between football and globalisation. Econometric evidence shows that emigration improves international football performance because players acquire valuable skills in foreign clubs while continuing to represent their country’s national team (Berlinschi et al. 2013.)
3 However there is research on the role of corruption with regard to match fixing in international football, e.g. Reade and Akie (2013).
6 This is obviously a very rough indicator, which is too premature to be sufficiently reliable and which ignores the monetary costs of the various projects. It simply gives a headcount view.
7 Data and methodological details are at http://indicedetransparencia.com/