The Impact of Hosting a Major Sport Event on the South African Economy



lower than expected economic benefits may have been due to the fact that football has not
traditionally been a major sport in Asia, but apart from these unsatisfactory gains, the 2002
FIFA World Cup was a successful event for South Koreans without any major societal and
cultural problems.

An economic impact assessment by Grant Thornton (2003) of South Africa’s 2010 World Cup
Bid and the Inspection Group Report for the 2010 FIFA World Cup (2004) highlighted some of
the potential benefits to the economy, and found that the staging of the World Cup in South
Africa will create significant direct and indirect economic benefits for the country’s economy,
with minimal tangible and intangible costs.

3.     Methodology

3.1    General

The Computable General Equilibrium (CGE) modelling approach will be used to simulate the
impact of the 2010 FIFA World Cup on the economy. The UPGEM model used in these
simulations is a 32-sector computable equilibrium model of the South African economy based
on the ORANI-G model of the Australian economy. It was created in 2002 by Jan van
Heerden and Theuns de Wet of the University of Pretoria and Mark Horridge of the Centre of
Policy Studies at Monash University.

Like the majority of CGE models, the UPGEM model is designed for comparative-static
simulations (Horridge, 2000). The data does not comprise of time series data but is instead
compiled from a Social Accounting Matrix (SAM), which implicitly describes the economy at
any given time. It is further assumed that economic participants are price takers operating in a
competitive market, and that demand and supply equations for private-sector agents are
derived from the solutions to the optimization problems e.g. cost minimization and utility
maximization (Horridge, 2000). The UPGEM model has a theoretical structure which is typical
of a static AGE model. It consists of a number of equations describing, for some time period,
i) producers’ demands for produced inputs and primary factors; ii) producers’ supplies of
commodities; iii) demands for inputs to capital formation; iv) household, government and
export demands; v) the relationship of basic values to production costs and to purchasers’
prices; vi) market-clearing conditions for commodities and primary factors; and vii) numerous
macroeconomic variables and price indices (Horridge, 2000). In addition, the model is based
on a number of sectors, industries and commodities. Each equation in the model explains a
variable which is either endogenous or exogenous. Endogenous variables are explained by
the model, whereas exogenous variables are set by the user or are assumed to be fixed. Only
exogenous variables can be shocked.



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