Trade and Investment

Why the World Cup is a bit like international trade

Soccer Football - World Cup - Group E - Serbia vs Brazil - Spartak Stadium, Moscow, Russia - June 27, 2018   Brazil's Paulinho celebrates with Neymar after scoring their first goal    REUTERS/Axel Schmidt     TPX IMAGES OF THE DAY - RC16A7C6C250

Everyone's a winner? Brazil's Paulinho celebrates with Neymar after scoring a goal Image: REUTERS/Axel Schmidt

Alberto Posso
Associate Professor (Economics), International Development and Trade Research Group, RMIT University
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The FIFA World Cup is currently being held in Russia. The occurrence of an international event of this nature at a time when there is a backlash against globalisation is interesting because of the similarities between international sporting events and international trade.

Both have winners and losers, not everyone can fully participate, endowments can make a big difference and, in the end, it makes most of us, yet not all, better off.

Most countries get a chance to participate in the World Cup, just as most can participate in international trade. The vast majority of countries import and export something, be it natural resources, agricultural goods, manufactures, or services. However, how far countries go with either international football or trade really depends on a combination of luck and policy.

Some countries have very large coast lines, are closer to other nations, and may be blessed with natural resources. All of these constant factors can potentially determine how much they trade. In fact, a small open economy on the Mediterranean with, say, lots of oil or natural gas, would be very likely to trade. Similarly, a country with a fascination for football in an area of the world with weaker competition is going to be more likely to qualify for the World Cup than others, merely thanks to its location and culture. If Italy, for example, would be in Oceania, it would probably be playing in this World Cup. Luck matters.

Luck or policy?

The good news, however, is that policy also matters. Economic literature has hundreds of studies showing how macroeconomic and microeconomic policies can influence patterns of trade. The literature would tell us, for example, that Trump-administration efforts to increase tariffs on industrial technology are likely to hurt US exports by decreasing the availability of inputs necessary to make final products. Indeed, most empirical data show a strong positive correlation between imports and exports.

Similarly, the right policy mix is likely to help in a World Cup campaign. Football federations need to have the right coaches, provide appropriate incentives to players, and play stars on the right spot. For example, four years ago when Argentina placed Diego Maradona as national manager, the national team under-performed, arguably because Maradona did not place key players in positions where they would get to exploit their natural talent – attacking midfielder Jonas Gutierrez was placed at a defensive right-back position. Finding a policy explanation for Argentina’s performance in the current World Cup is probably also plausible, though premature.

Overall, success in trade and in football also depends on policy – what those in charge do. The extent to which luck ends up being more important than policy probably varies by case, but there is definitely room for improvement over and above luck.

The notion of luck, however, is annoying because it creates an unfair advantage in the international arena. So why do economists and football fans still admire these practices? I think that the reason is that both international trade and the FIFA World Cup make us better off on average.

Winners and losers

Conceptually, international trade allows countries to focus on producing things that they are good at and importing things that they’re not good at. The notion is that countries gain by spending fewer resources on making a given unit of something that they’re really good at and not wasting those resources on productive activities that give them lower returns. On average, this has been found to increase economic growth.

Unfortunately, however, trade will inevitably hurt those people who used to make the same thing to begin with. In theory, those people are retrained and absorbed into more productive activities. In practice, this can take a long time - and may not even happen at all. It is for this reason that economists often talk about winners and losers, discussing ways to help the losers, including better education, cash transfers, and others.

The World Cup will similarly have winners and losers. Indeed, for those of us from countries that didn’t qualify in the first place, it seems like we already lost.

Nevertheless, the World Cup breaks down a lot of political and cultural barriers, putting people in a setting where they speak the same language. In that regard, we are all potentially winners. However, if we’re all truly going to win, the challenge is not to lose the momentum that these international sporting events generate. In essence, if we can come together to play a sport at a time of de-globalisation, perhaps we can come together when the football is finally over and when the eventual winner goes home with a trophy that can be shared by all.

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