Monday, December 2, 2019

Protectionism, Competitiveness and Inequality: Cross-Country Evidence from Soccer


 

Protectionism, Competitiveness and Inequality: Cross-Country Evidence from Soccer


One sentence summary: Foreign direct investment increases international competitiveness of soccer clubs at the cost of their domestic equality.

The corresponding academic paper by Hakan Yilmazkuday has been accepted for publication at International Economic Journal.
 
Working paper version is available here.

 
Abstract
Using club-level data on domestic-league and international points from 73 countries, this paper investigates the relationship between country-specific protectionist policies and soccer success. The main contribution is achieved by having a policy evaluation of country-specific regulations, where other domestic regulations, market value of clubs, or number of matches in domestic leagues are controlled for. The results show that restrictions on foreign direct investment reduce international competitiveness of clubs, whereas restrictions on international migration policies have no significant impact on it. Domestic inequality across clubs increases with international migration restrictions based on minimum number of home-grown players, while it goes down with restrictions on foreign direct investment or international migration restrictions based on maximum number of foreign players.



Non-technical Summary
Several countries have adopted economic policies to improve their national interests at the expense of international integration after the Great Recession of 2008. These so-called protectionist policies have resulted in restrictions on both foreign direct investment (FDI) and international migration, especially for certain sectors that are accepted as important.

Soccer is one of these sectors being subject to protectionism. Despite the well-known positive effects of human capital through transferring foreign talents, politicians such as Boris Johnson of England has promoted restrictive policies on international migration through blaming the unsuccessful results by the national team of England on the large number of foreign players "soaking up space on our top teams," whereas Silvio Berlusconi of Italy has revealed his preferences for the soccer club of Milan playing with all-Italian players. Similarly, both former chairman of the English Football Association, Greg Dyke, and English soccer coach Paul Scholes have spoken about their concerns regarding how foreign players could damage the national team of England as youngsters are unable to break through.

Besides these national-team concerns, club-level concerns are also significant for international migration policies. For example, when soccer clubs borrow heavily to attract foreign stars, they may become financially unstable; e.g., soccer clubs in Turkey had to have their mounting debts restructured by the country's banking association as their overall debt was more than $1.87 billion.

Protectionism on soccer has also been achieved through FDI restrictions, although FDI is an easy way for soccer clubs to obtain necessary financial resources to be more competitive. Potential reasons for FDI protectionism are soccer clubs or leagues no longer feeling local, or team owners not having any real connection with the city but only having a financial interest. For example, ProFans, a lobby group of Bundesliga supporters and ultras in Germany, has warned that "a storm would gather, nationwide" if foreign investors would be allowed to take over soccer clubs.

This paper investigates how these protectionist policies affect international competitiveness and domestic inequality of soccer clubs. This is achieved by using a cross-country data set from 73 countries at the top-tier soccer-club level. Three particular protectionist policies are investigated, namely FDI protectionism, restrictions on the maximum number of foreign players, and restrictions on the minimum number of home-grown players.

Rather than using data on the actual amount of FDI, actual number of foreign players or actual number of home-grown players, which are all subject to several club-level characteristics (and thus would lead into potential endogeneity in a typical investigation), we directly focus on a policy evaluation based on country-specific regulations. In particular, we utilize the cross-country regulation data published by Fédération Internationale de Football Association (FIFA), where information on country-specific regulations is provided for FDI and international-migration protectionism. We combine this cross-country regulation data with club-level success data (measured by club-level points) coming from both domestic soccer leagues and international competitions.


The investigation results in showing that having access to FDI corresponds to higher overall soccer success at the club level, whereas restrictions on international migration policies have no such significant impact. The results also show that domestic inequality across soccer clubs increases with international migration restrictions based on minimum number of home-grown players, while it goes down with restrictions on foreign direct investment or international migration restrictions based on maximum number of foreign players. The results are robust to the consideration of several control variables, including other domestic regulations or club-level characteristics such as their market value.

 
The corresponding academic paper by Hakan Yilmazkuday has been accepted for publication at International Economic Journal.
 
Working paper version is available here.