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.

Comments

Countries which bid for the Olympics are probably similar in that they are all dynamic, out-going countries. However, the winning bid receives far more attention, and should increase exports much more. That it does not suggests that the heterogeneity point is dominant.

Atlanta and Salt Lake City saw pretty good growth following the olympics. How large that would have been without them I have no idea. SLC area has had some pretty large foreclosure numbers.

Havanna will make a bid next go round.

nice one, zamfir.

30% sounds unbelievable.
It may be right, of course, every now and then science does show up incredible results that are true. But a 30% increase makes me prickly.
And really how does intending to host Olypmic games signal an intention to liberalise? I can understand why a PhD signals an ability to work long hours and delay gratification, but the link between liberalising and hosting Olympic games doesn't seem nearly so obvious.
And why is it in policy-makers' interests in the central government and the big city to liberalise?

Oh, man, I hope it's true at a local level too:

"Birmingham, Alabama, mayor wants Olympics in 2020"
http://www.al.com/news/birminghamnews/index.ssf?/base/news/1214036114220520.xml&coll=

Patrick
Birmingham, AL

As if many people are aware of who bid and failed. There is no mechanism for this to happen.

Everyone seems to agree with Tyler's criticism, but I don't understand the difference between the paper's conclusion and Tyler's criticism.

Does it hinge on whether a hypothetical non-Olympic-bidding but still "liberalizing" country would not see the same economic gains as a bidding-and-liberalizing country? If so, what are some of those countries?

If there aren't any, the criticism and the paper seem like they are saying the same thing: Liberalization is good for the economy and liberalizing countries are more likely to bid on the Olympics.

Well,
So the best policy any government (even the albanian one) should do is to bid to every major event in the world (once that it doesn't matter if you win or not).
I think that you cannot call this type of thing as signalling. Once all country types can bid for any event (there no cost at all in doing this. You can even say that this is not risky, once that the countries which would be hurted if hosting these kind of events will never be picked to host them).

Curt - the paper introduces a further hypothesis - that cities bidding for the Olympics are signalling that they are committed to liberalising. Why bidding on the Olympics would signal a commitment to liberalising is not discussed in the paper and I can't figure out a plausible explanation.

Comments for this post are closed