I had a lot of good feedback on my post on soccer. In particular, there were quite a few suggestions for related material.
Check out Branko Milanovic's paper, which covers closely related ground. I had actually read this paper a while back; I simply forgot to refer to it. Here is the video version. Chris Dillow has interesting thoughts here. An interesting paper by Baur and Lehmann asks "Does the Mobility of Football Players Influence the Success of the National Team?" and answers that yes, it improves national teams. And Alex Edman points me to a recent paper of his on the importance of loyalty to national teams: the paper shows that international soccer losses lead to investor depression and stock market declines; it was published in the August issue of the Journal or Finance.
Where I think we still need work is on the quality of domestic league play in countries which export most of their star players. As some commentators pointed out, Latin America is the right testing ground for this (in view of the pervasiveness of the phenomenon and the better data), and one can look at stadium attendance, value of TV contracts, or ticket prices as indicators of trends in quality. Whether on balance the average Brazilian or Argentinean soccer fan is better off or not seems to me to be an open question.
Now who else is rooting with me for ManUtd to win against Arsenal this weekend and rise to the top of the table?