Economists are often involved in forecasts and predictions. This often involves macro-level variables such as inflation, unemployment or the rate of growth of the economy. Sometimes, however, economists try to predict something much more important: such as the World Cup due to start Friday in South Africa. French economists Madeleine and Wladimir Andref have done just that. In a paper to be presented at the Western Economic Association International meeting, they use economic variables and methodology to predict the semifinalists.
It might seem strange, but economists have been using economic models to predict Olympic medals for several years with a large degree of success. For example, the Andrefs correctly predicted (within two medals) 88 percent of the Beijing results. They use this model as a starting point for soccer, hypothesizing that a country's probability of reaching the semifinals depends on the country's population, gross domestic product per capita, whether the team is the host country or comes from South America or Europe and their past history in the tournament. The population and GDP measure convey the idea that a team's ability to compete in the tournament depends on the country's resources.
Population measures the available labor resources, and GDP measures available goods and services produced in a country. This is a crude measure of things such as facilities to train in and coaching services. Historically, host countries benefit from local support and do better -- no host has failed to make the top 16. Finally, only teams from Europe and South America have ever won the World Cup.
Using data from all the World Cups played since 1930, they predict that of the 32 teams competing this year the semifinalists will be Germany, Brazil, Italy and France.
Germany had a GDP per capita of $34,212 in 2009 according to the International Monetary Fund. Germany has an estimated population of over 81 million people and has made the semifinals 11 times. The Andrefs calculate that Germany's probability of reaching the semifinals this year is 96.2 percent.
Brazil has a GDP per capita much lower than Germany's at $10,514 but has a larger population of 192,971,000. They have also made the semifinals 10 times. Their probability this year is 92.9 percent.
Italy and France have similar populations and GDP per capita, but Italy is more likely to reach the semifinals based on the previous eight appearances in the final four.
How well will the U.S. team do? With the third largest population in the world and the sixth largest GDP per capita you might think that they are in. Unfortunately, they have not achieved a semifinal place since the first tournament in 1930.
The Andrefs put their chances of making the semifinals at 9.6 percent but probably enough to make the top 16. They start their world cup schedule on Saturday against England.
Simon Medcalfe is a professor of finance at Augusta State University.