Posted: July 1st, 2015

Economic impacts of the world cup on the host country

Literature Review

            The literature review evaluates various scholarly books and journal articles that have been written in the light of economic effects of world cup to the hosting countries. There have been numerous previous studies on the world cup’s economic shocks on countries that host this great event. This review of literature seeks to synthesise these previous studies to inform the topic of the study. The review takes devoted consideration on the models of research, study results and recommendations postulated in these previous researches.

Economic Impacts of the World Cup on the Host Country

            Dubois (2010) defines world cup as a confederation international soccer sports tournament that takes place after defined time duration and is hosted by a country whose team is participating. The author further indicates that the tournament was launched in 1930 and takes place after every four years where the national teams which have succeeded in the qualifying matches participate in the world cup matches. Although there are similar international events in other games such as rugby and volley ball, the term world cup is unanimously used in chief reference to international soccer tournament. According to Lee and Taylor (2005) the world cup is termed as one of the most reputable events sporting in the world and is highly valued by prospective host countries for the perceived economic benefits it associates with. The author however indicates that the economic benefits assumed by host countries do not match their expectations. The authors in their study highlights that the event does not lead to short-term growth in host countries’ economic sectors such as the tourism sector, retailing sector as well as employment and accommodation sectors. The author however argues that the world cup event is likely to boost economic expansion in the highlighted four sectors in the long-run and disputes contra claim by some texts.

Szymanski (2002) in a study whose aim was to establish and assess the long-term economic effects of the world cup upon host nations established that the mega event cannot bring forth short-term economic benefits to presiding nations but can lead achievement of long-term benefits. The study established that there exist positive economic impacts in consideration of a variety of factors. These factors include the innovation effect brought about by the new stadiums; host country’s citizens feel good effect, as well as the international perception of host country. The author however recognizes that all factors do not have the same degrees of effect on the host countries where some nations may fail to realise benefits from certain factors. The author conducted an in-depth analysis of the past world cup events where and used regression analysis to analyze the results. The research distanced itself from factors such as growth in investments in host countries as well as increase in employment opportunities as highlighted and indicated by other measurements. The author rather centralised on the feel good effect, new stadiums and international perception as the real long-term benefits accrued to the host country.

Allmers and Maennig (2009) in a study established that new stadiums constructed by host countries in the light of world cup as a prerequisite by FIFA lead to economic development. The author indicates that although constructing or upgrading sports stadium to meet the standard FIFA requirements by hosting countries attracts high costs, they serve as investments to hosting countries. The author argues that the revenue earned by these stadiums during the sporting event and afterwards has significant positive effect on the country’s economy. After the world cup event, the stadiums are usually utilised by the host countries for regional and domestic soccer events. The author further indicates that revenue earned from domestic sporting activities held in these advanced stadiums can meet the maintenance costs of these stadiums. The author claims that the generated revenue from the stadiums contributes in strengthening the economy of the country.

Scholars Bayar and Schaur (2014) indicate that other than ticket sales benefits, world cup’s stadiums has an iconic stature which has regional influence and bring about specific economical advantages to the host nation. The scholars conducted a study on the Allianz Arena and the Wembly Stadium in Munich and London respectively where they established that these stadiums have assumed the position of landmark in the respective cities. The scholars in their study indicated that these stadiums help in enhancing the perception of outsiders towards the host countries which in turn lead to increased tourism and investment activities. After investigations and data analysis, the authors established that the revenue earned from spectators and tourists rose by about 60% after the 2006 Germany world cup compared to the prior period. From this study, it is visible that world cup has potential positive effect on the host country’s economy. The researchers however based their analysis on developed nations and fail to discuss the effect on developing nations.

Baade and Matheson (2004) conducted a research on the effects of world cup to the hosting countries’ economies. The research focused on the long term effects of the event where there cited infrastructural development as a major impact to the economy. Other than the newly refurbished sports grounds, the study indicated the world cup leads to infrastructural developments which would not have been done it the absence of the event. Such include transport networks, accommodation facilities and business centres. These are argued to support economic growth of the nation even after the sporting event is over. In a study Szymanski (2011) established that post world cup effects have different implications in the economies of developed and developing nations. The study indicated that developing nations may not realise positive economic impacts from construction of new stadiums as it is the case with the developed nations. The authors for example identified that construction of new sports arena may have huge negative impact on developing nations due to huge capital investments. The research identified that revenue generated during the world cup is not enough to recover the cost of building such world class stadiums. The author identified that developed nations have stadiums whose standards qualifies the basic requirements by FIFA hence do not spend in towards stadium construction.

Knott, Allen and Swart (2012) in a study established that hosting countries may experience a backlash in their economies where the capital investments especially in infrastructural constructions may not be recovered. The study took a strategic analysis of post world cup effects of the 2010 FIFA world cup held in South Africa. The study established that most of the stadiums remained under utilized after the sporting event and had no capability of generating adequate revenue for maintenance and sustenance. Although this might not be the case for the developed nations, the authors highlighted that governments in developing nations are forced to spend more economic resources to maintain the world cup stadiums. In a comparative analysis, the study indicated that developed countries tend to leap more economic benefits from the world cup than developed countries. Although the statistical analysis of the study is inferred from the Germany and South Africa world cup in 2006 and 2010 respectively, the results are convincing.

Preuss and Schnitzer (2015) indicated that the impacts of world cup events to the economies of the host countries are dependent on the current economic status of those countries. The study investigated the economic impact of the 2014 FIFA world cup in Brazil where it established positive economic effect. The study established that Brazil experienced a positive net impact in the short-term with total net earnings of about $2.6 billion. The revenue earned from the world cup event resulted to a positive GDP of 0.04%. The economic growth seems to be relatively small as compared to the magnitude of the event. The authors of the study however reviewed the probable long-term effect from Ernst and Young forecast reports which indicate potential positive economic impacts where the Olympics and the world cup are expected to lead to provide employment to 3.6 people in Brazil amounting to annual economic growth rate of 4%. Kim, Gursoy and Lee (2006) in a study indicated that countries hosting the mega sporting events such as the world cup and Olympic are highly optimistic of economic windfalls. The author indicates that post world cup economic evaluations tend to hardly locate positive effects on the country’s economy.

Maennig and Du Plessis (2007) conducted a study on the effect of the world cup to the economies of the hosting countries. The study established the “feel-good effect” as a major impact of the sporting event which consequently results to constructive economic benefits for the country. The authors define feel-good effect as the enthusiastic atmosphere of the host population during the sports events where the citizens are in an elevated joyous mood. The authors indicate that this feeling increase the people’s willingness to involve themselves in activities that attract spending that is beyond the normal spending. This increased urge to spend is measured by a person’s willingness to pay (WTP). Bull and Lovell (2007) in a similar study investigated the “feel-good effect” in the 2007 Tour De France. The study established that the WPT of France citizens rose from €4.26 to €10 per individual. Although the “feel-good effect” had earlier been dismissed by economist an ineffective economic indicator, Maennig (2008) reconfirmed this theory indicating that hosting big sports event can bring about happiness and enthusiasm among the citizens leading to more spending which then translates to increased economic growth.

Gibson et al (2014) argued that government’s world cup related infrastructural investments result to either positive or negative economic impact depending on the appropriateness of such investments to the industry. The authors indicated that investments that fail to complement the industry may fail to yield desired growth of the economy. The author further argued that the government would yield higher economic benefits if invested in infrastructure that is supportive of the industry rather than world cup oriented infrastructure. The author argues that although world cup event may a country marginal return from infrastructural investments, investing such capital in industry oriented projects would yield much higher returns. Based on these sentiments, there is little economic incentive of hosting the world cup. Although the authors have a strong point, their study however failed to provide empirical evidence supporting the claims which would have been necessary.

In a similar study, Baade and Matheson (2004) also assessed the economic effect of the world cup. The authors conducted ex-post evaluations of the events of 2002 world cup which was held in Japan and Japan and the 1994 world cup held in US. It was established that hosting the both events consumed close to $4 billion in construction and refurbishing world cup related infrastructure. The study established that economic gains of the world cup cannot justify the extent of expenditures. The ex-post financial expenditure evaluations indicated that the hosts experienced financial losses of $5.5 to $9.4 billion converse to estimated gains of $4 billion. Based on the study’s findings, it seems the honour of hosting world cup events has a injurious outcome on the financial system of the country owing to irrecoverable expenditures. Kim and Petrick (2005) after an empirical analysis indicated that residents of the country which has been granted the honour to host the world cup sports event have mixed feelings towards the economic benefit of the event to their country. People in the informal sector perceived world cup to have more positive than negative impacts on the country’s economy, while people in the formal sector held a contrary opinion.

In a study on the effects of Rugby World Cup (RWC) on the economies of host countries, Frawley and Cush (2011) identified three categories of impacts which are inclusive of the core impacts, direct as well as induced impacts. Core impacts include those impacts resulting from spectator spending either on the match-day tickets or catering. These have implied positive effects to the economy. Direct impacts include expenditure by external spectators on sustenance and accommodation as well as government spending on infrastructural investments. The author argued that indirect or else induced impacts are the ones that substantial effect on the country’s economy, this is where the money obtained from the sporting event’s activities is reinvested in the economy. This leads to business growth and consequent expansion of the economy. In the study, the authors also did preliminary research on economic effects which would not have taken place if the sport tournament was not hosted in that particular country. Such include magnitude of air travels through the host country’s air companies. The study however fails to employ empirical analysis of the real impacts to the economy but rather provides a descriptive analysis.

Bayar and Schaur (2014) identified foreign spectator expenditure as the main factor that leads to an impact on the economy of the country obligated to host the world cup. Expenditure accrued to the match-day by the spectators, non-match day spending as well as expenditure by the international media team were identified by the authors as the main foreign expenditure components. The authors conducted an empirical analysis on the economic impacts of three RWC held in Australia, France and New Zealand in 2003, 2007 and 2011 respectively. The study analysed both pre-event and post-events and compared the same with actual realisation from the events. Although expenditure by the foreign spectators and facilitators such as media teams was identified as the major factor contributing to the economy of the country hosting the event, the nature of the impact different. The study concluded that the nature of impact is dependent by the current economic condition of the hosting country such as the cost of living. Based on the study, it is visible that economic benefits or challenges resulting from hosting world cup activities can only be established based on the real economic scenario of that country and cannot be assumed from findings from other countries with different economic set up.

Gordon and Vidal (2014) in a study established that not much economic benefit is realised from the world cup sporting activities, either in soccer, Olympics, baseball among other sports. The researchers conducted an ex-post study on the 2006 world cup held in Germany. Based on establishments of the study, estimates predicted creation of 10,000 additional jobs from investments of €6 which would translate to economic growth of €2 to €10 billion. The study in the post-match economic analysis found that there was no significant effect on unemployment in the country. The study established that estimates of economic benefits were exaggerated and Germany did not receive significant economic growth from the event. The study established that FIFA was the only main beneficiary of the event while Germany accrued no major economic benefit in the long-run. The authors also conducted an empirical analysis on the economic impacts of 2010 soccer world cup held in South Africa. The study identified that the event attracted huge government spending which was not compensated by the short-run gains from the events with little economic gains expected in the long-run due to underutilised stadiums.

Preuss and Schnitzer (2015) from a study argued that hosting the world cup has potential influence of the country’s financial performance in the stock exchange. The authors argue that hosting the world cup increases the people’s willingness to spend and changes their perceptions from being pessimistic to being optimistic. The authors argued that participation and hosting of the highly celebrated international sport tournament raise the demand and price of the shares traded in the national exchange of the host country. The authors argued this to be as a result of positive international perceptions of the hosting country as well as the feel good effect among the citizens. This hence was argued to translate to increased industry efficiency and improved overall productivity in all economic sectors. The research performed an experiential evaluation of the stock exchange activities in Korea/Japan and Germany world cup which were characterised by positive financial performance surge. The authors attributed increased productivity in the informal sector in Korea to the feel good effect based on the fact that soccer is highly appreciated in the country.

According to Werner, Dickson and Hyde (2015) hosting the world cup leads to enhanced positive international perception which in turn leads to potential economic benefits in the long-run. In a study, the author sought to establish the long term economic effects brought about by the world cup to the host country. The author argues that during the world cup the country hosting the events becomes a major target point by the international media and community. The collected information contributes in shaping the perception of the international society towards the country. In a related study, Kim et al (2015) identified that the world cup helped to shape Germany’s tainted image which was previously perceived as a “cold nation” with little hospitality towards foreigners. The study indicates that the international image of Germany was improved after the soccer world cup. The authors argue that the increase in international trade between Germany and other countries is attributable to the positive image created after the world cup. The study also indicates that tourism sector in Germany also improved with an increased number of international tourists. The major weakness of the study was lack of evidence based research where the authors did not conduct pragmatic research relating data to the acclaimed facts.

Bohlmann and Van Heerden (2008) in a study indicated that the world cup leads to crowding effect on the host country’s economy. The study indicates that hosting the world cup attracts large quantities of government spending hence the government exerts pressure on various economic centres to pull the funding. The author indicated that government can either postpone current investments, increase tax and levies as well as use deficit financing. The study identified deficit spending as the most utilised method by the government to gather funds in order to finance the world cup support activities. This was established after analysing on the source of government spending in the past three world cup soccer events. The study argues that since world cup expenditure by the government is usually independent of the prevailing business cycles in the country, it is always difficult for the country to form an equitable budget hence end up crowding out other private ventures. The study concludes that government financial support of world cup ventures has substantial negative effects on the country’s personal investments. Cornelissen, Bob and Swart (2011) indicate that although the world cup investments have seemingly positive effect on the economy due the fiscal growth, it leads to destabilisation of the balance of trade in the long run due to the crowding effect.

Frawley and Cush (2011) conducted a study on the impacts of major sporting events to the host countries. The study concentrated on analysing the tourist arrivals in the host country during and after the event. The study used standard gravity model to analyse the flow of tourists in countries that hosted the major international sporting events between 1995 and 2006. The study conducted a pre and post analysis of the tourist arrivals in these countries. The study’s results suggested that major sports events boost tourism in the host countries although this varies with the type of the event. The Olympics and the World Cup were identified as the events which lead to enormous tourism travels regardless of the season of the year. This consequently increases the country’s GDP through expansion of the tourism sector. Nicolau (2012) in a similar study identified tourism sector development as the major economic impact of hosting major sporting events in a country. The study conducted an empirical research on the 2010 FIFA world cup. Statistical results from the study indicate that the number of tourists increased exponentially during and after the world cup.

Conclusion

            The review of literature has provided the research with a deeper conceptualisation of the impacts of the world cup to the host country’s economy. Upon evaluation of various previous researches related to the area of the study, it is evident that world cup has got significant effects on the economy of a country in which it is hosted. These impacts have potential direct correlation effect to the economy or indirect effect and are deemed to make either positive or negative contribution to the economy. From the review of literature, it is evident that different researchers have varying opinions regarding the magnitude of the economic impact. It is visible that the area of the study is wide a leaves gap for further research.

 

 

Reference List

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