Economic Policy Review ISSN 1313 - 0544

Impact of the World Cup on the Bulgarian Economy

Author: Veliko Dimitrov / 29.01.2007
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It is generally impossible to make an absolutely exact statement about the cumulative economic impacts that an event like the World Cup (WC) would have on a certain country’s economy. It is much more likely to guess which team out of 32 and by what score would win the final game or who would happen to be the best scorer; all this at least because the number of possible outcomes are far fewer than those in regard to the various impacts that the WC could have on the economy. Nevertheless, applying the instruments and logic of economics could reveal in what direction and to what extent that event is influential over the economy.

In general, the impact consists of the opposite dynamic of two macroeconomic indicators: consumption and labor productivity.

Increase in consumer spending

Events of that scale logically generate positive impulses to consumers: first, through enhanced advertising, which leads to higher awareness and propensity to consume, and second, through the inherent higher consumption of certain goods for the time a game is being followed. Of course we should add the increase in consumption of durable goods like flat screen TVs, as well as for symbol articles closely related to the event. All of this accounts for GDP and income growth and finally boosts the economy. Although this should be considered entirely positive, the increased consumption only takes place just in the short run. In the post-WC period, we may witness a decrease in spending that could be intense enough even to balance out or exceed the previous rise. On the other hand, the time-restricted upward tendency is mainly due to higher spending for non-investment goods (beer, wine, food), which, on its own, is unable to secure higher production and wealth in future.

Decrease in worker’s productivity

A downward tendency in labor’s productivity or just absenteeism is the other main effect resulting from the WC and people’s affection for it. According to a study of the Centre for Economics and Business Research(1) during the 2002 World Cup held in Japan and Korea, the EU15 suffered a 8,7 bn euro loss of GDP through absenteeism. Harder to estimate are losses resulting from lower productivity, especially for those professions where payment is not directly connected to output. In Bulgaria, like everywhere else, those employers who generally pay with no or little regard to measurable results are suffering much more. However, incurred losses would have been more significant if all or most of the games were broadcasted during the work day, very early or at night (which by the way is the case in Latin America, Australia or Asia).

Ranked on third place, we might also have to mention the negative impact of the WC on the foreign exchange inflow into Bulgaria in terms of fewer visitors, which would mean comparatively higher trade balance deficit. There is for sure a certain number foreigners who if there were no WC, would have spent their holiday rather in Bulgaria, than in Germany. It is expected that over 1 million tourist would visit the host country and spend there over 700 million euro. On the other hand, the spending of all Bulgarians who had joined the WC live in Germany is equal to import of goods and services, which finally will push up the current account deficit.

If we would like to be more specific and convincing about which WC impact predominates – the positive or the negative – let us take a look at what it is in economies, which are supposed to experience the most intensive impact, i.e. the hosts.

Table 1: Cumulative growth in real gross domestic product host countries (1954 - 2002)

Year

Host country

Pre: -2 years to WC

World Cup

Post:
WC to +2

1954

Switzerland

4,4 %

5,5 %

6,4 %

1958

Sweden

2,6%

2,9 %

4,2 %

1962

Chile

4,8 %

4,7 %

4,3 %

1966

England

2,1 %

2,0 %

3,3 %

1970

Mexico

6,6 %

6,9 %

6,3 %

1974

Germany

2,5 %

0,3 %

1,8 %

1978

Argentina

1,5 %

- 3,2 %

4,2 %

1982

Spain

0,6 %

1,2 %

1,8 %

1986

Mexico

- 0,5 %

- 3,1 %

1,5 %

1990

Italy

2,4 %

2,0 %

2,5 %

1994

USA

3,3 %

4,0 %

3,1 %

1998

France

2,2 %

1,9 %

3,1 %

2002

Korea / Japan

2,8 %

3,6 %

3,2 %

Mean

 

2,7 %

2,2 %

3,5 %

 

Source: John Irons, Center for American Progress - http://www.americanprogress.org/atf/cf/{E9245FE4-9A2B-43C7-A521-5D6FF2E06E03}/WORLDCUPPDF.PDF

As shown in the table (average score), a higher GDP growth rate is registered before and after the WC itself. In the short period before the WC takes place, this is to be interpreted with intensive construction or modernization of stadiums, hotels and transport infrastructure; in the post period, induced effects prevail. For instance, in Germany over 6,2 bn. euro has been invested in relation to the upcoming event.

On average, despite the huge tourist flow and the surge in consumer spending, the WC year registers the lowest GDP growth rate. This is of course to a not inconsiderable degree, due to the lower worker’s productivity. Thus, we have to conclude that for host countries the decreased output as a result of lower labor productivity (or mere unwillingness to work) goes beyond the generally positive impact called forth by the increased domestic spending.

In this connection, we have to conclude the following for the Bulgarian economy: there is certainly a downward tendency in labor productivity and an increase in consumer spending as well. All other positive impacts, which are intrinsic for all host countries, however, are not on the table for Bulgaria. After it has been clarified that the negative impact of decreased labor productivity in host countries is more significant that the cumulative effect of all other factors, we can with a very high grade of confidence hold the point that the net effect of the WC for the Bulgarian economy is negative.

 

 

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(1) http://www.cebr.com/