8/2/2014: Economics of Olympic Games: Part 1: Macroeconomic Impact

Part one of the series of posts summarising some economic evidence on the effect of Olympics on host economy. Emphasis within quotes is mine.


Cost-Benefit of Olympics in macroeconomic context:

McHugh, Darren, A Cost-Benefit Analysis of an Olympic Games (August 2006. http://ssrn.com/abstract=974724) estimated "the net benefit to Canada of the Vancouver 2010 Winter Olympic Games. Two particular classes of problems in Olympic CBA are studied in detail":

1. "the unique nature of project dependency in an Olympic Games, and this is surmounted by the classification of Olympic-related costs and benefits as "Event-related" or "Infrastructure-related", with rules for handing each in the context of a CBA for an Olympic Games."
2. "the estimation of net benefit of three types of "Olympic Outputs", namely the Olympic Spectacle, the Olympic Halo (the feelings of pride engendered in the residents of the host city), and the tourism induced by an Olympic Games."

Key results:

• "a correct accounting of induced Olympic tourism shows that the net benefit of this tourism is substantially less than its widely touted "economic impact". 
• "Although a detailed estimation of infrastructure costs and benefits is outside the scope of the paper, their contribution to the net benefit of the Games under the proposed project accounting rules is clearly negative."
• "The net benefit of the Olympic Games is therefore also substantially negative when the estimates of Olympic benefits from this paper are combined with published estimates for event costs."

Long-run v short-run outcomes from macroeconomic perspective:

Ferris, Stephen P. and Koo, Sulgi and Park, Kwangwoo and Yi, David T., Gold, Silver, Bronze or Tin? The Short and Long Term Effects of Mega Sporting Events (July 1, 2012. KAIST Business School Working Paper Series No. 2012-005. http://ssrn.com/abstract=2104963)

"This paper examines the short and long term effects of the Summer Olympics, Winter Olympics, and the World Cup on the economy of the host country."

The core finding: "selection for hosting the Summer Olympics only produces a significant positive announcement period effect in the host country’s domestic equity market. This effect however resides solely in the construction and building materials industry."

Beyond this rather shallow impact, "the Summer Olympic game hosting nations generate significant positive economic performance up to 3 years prior to hosting the event, while this positive economic performance disappears 1 year after hosting such an event."

Overall: "Our results suggest that contrary to the conventional claims by mega sports organizers, it appears that there are no significant long-run economic gains from hosting such mega sporting events."



Only positive impact discovered to-date is via exports channel:

Rose, Andrew K. and Spiegel, Mark M., The Olympic Effect (April 2009. NBER Working Paper No. w14854. Available at SSRN: http://ssrn.com/abstract=1376157)

"Economists are skeptical about the economic benefits of hosting "mega-events" such as the Olympic Games or the World Cup, since such activities have considerable cost and seem to yield few tangible benefits. These doubts are rarely shared by policy-makers and the population, who are typically quite enthusiastic about such spectacles." Obviously, rarely there is a surprise to be found in a discovery that politicians and public tend to disagree with economics... but...

"In this paper, we reconcile these positions by examining the economic impact of hosting mega-events like the Olympics; we focus on trade. Using a variety of trade models, we show that hosting a mega-event like the Olympics has a positive impact on national exports. This effect is statistically robust, permanent, and large; trade is around 30% higher for countries that have hosted the Olympics."

Is that it, then? Not really. "Interestingly however, we also find that unsuccessful bids to host the Olympics have a similar positive impact on exports."

Why? "We conclude that the Olympic effect on trade is attributable to the signal a country sends when bidding to host the games, rather than the act of actually holding a mega-event."


Note: couple other papers were profiled earlier on this blog: http://trueeconomics.blogspot.ie/2012/10/18102012-some-tough-love-from-stats-for.html
http://trueeconomics.blogspot.ie/2012/08/282012-bit-of-olympic-bubble.html


Stay tuned for labour market impact and local regional impact studies summaries...