4.
Model Closure, Data and Shocks
In order to correctly simulate the impact of hosting the 2010 FIFA World Cup on the South
African economy, it is critical to use an appropriate model closure given the time period over
which the events occur. As indicated in the first section of this paper, there are several
phases over which expenditure related to the World Cup can be modelled. This study focuses
primarily on the first phase of expenditure and its impact on the local economy. The two most
important outcomes to take note of would be the impact on employment and GDP. It was
therefore decided to use a slightly modified version of the standard short run closure to
simulate the results.
As discussed previously, the nature of the comparative-static CGE model does not require
time series data, but is compiled instead from a Social Accounting Matrix (SAM). The input
data of the UPGEM model is based on the values of the 1998 SAM of the South African
economy published by Statistics South Africa, which implicitly describes the structure of the
local economy at that particular time.
The shocks applied to the economy are based on the proposed infrastructure investment and
development as indicated by the South African Bid Committee to the FIFA Inspection Group.
The main beneficiaries during the first phase of the World Cup will be the construction sector
and the increased productivity arising from improvements to the transport infrastructure.
Although the second phase of the World Cup will obviously benefit service sectors such as
hotels and other accommodation a great deal, it was not included in this round of simulations.
By comparing the proposed amounts to be spent on development of the relevant sectors, to
the current level of expenditure, the percentage shock to the industries is calculated and the
impact thereof simulated using the UPGEM model. It was decided to shock the capital stock
of the construction and transport industries with an increase of 10 percent, the capital-
augmenting technological change in construction by 5 percent and the capital-augmenting
transport technological change in the transport industry by 10 percent. This was done in order
to simulate the effect of the increased activity in the construction industry due to the
improvement and building of new stadiums, and infrastructure in general. These
improvements to infrastructure, especially the transport sector, will translate into greater
productivity and technological progress in the local economy. The main findings of the
simulation are reported in the next section. The effects of the two different shocks, the
increase in capital stock and the improvement in technology, were disaggregated and the
impact of each separately simulated. Scenario 1 in the simulation results refers to the capital
stock increase only, scenario 2 the improvement in technology only, and scenario 3 the
combined effect of the shocks on the economy as a whole.