Trade and the signaling benefits of hosting the Olympics

Andrew Rose and Mark Spiegel report:

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.
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. Interestingly however, we
also find that unsuccessful bids to host the Olympics have a similar
positive impact on exports. 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.
We develop a political economy model that formalizes this idea, and
derives the conditions under which a signal like this is used by
countries wishing to liberalize.

An ungated copy of the paper is to be found here (which, I should note, I have not read). 

Could it be unobserved heterogeneity, namely that up-and-coming nations (and there is no perfect way to control for that) are the ones who apply to host the Olympics?  It costs a lot of money to put together a bid and Albania is simply not going to try.  It is hard for me to believe that unsuccessfully submitting a bid to host the Olympics should boost exports by 30%.  The simpler model is that winner's curse holds, overbidding for the games results, bidding is also driven by rent-seeking and special interests, but since the bidders are up-and-coming cities in the final analysis the complaints don't sound so convincing.


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