Blogs & Comment

The positive Olympic effect

Study after study indicates that hosting the Olympics has little or no lasting economic benefit. Putting on the Games costs upwards of $1 billion at taxpayer expense, leaves a dubious legacy of unused buildings that are eventually mothballed or given away, dont create permanent jobs, and dont generate future tourism dollars once theyre over. But a new study gives Olympic supporters some grist for their mill.
The Olympic Effectargues that hosting nations enjoy a permanent increase in trade of about 30% following their successful bids. An increase of that size is equivalent to the effects of signing a shared regional trade agreement, according to Andrew Rose of the Haas School of Business at U.C. Berkeley and Mark Spiegel of the Federal Reserve Bank of San Francisco. The increase, the pair’s research suggests, is because bidding for the Olympics is a costly policy signal that is followed by future liberalization.
It makes sense that if a country is going to spend billions to put itself on display, it will follow up with policy changes designed to open up the economy. For instance, China formalized its trade liberalization commitment to the World Trade Organization two months after Beijing was awarded the XXIX Olympiad. Italy started moving toward currency convertibility, joined the UN and began negotiations that would lead to the Treaty of Rome and the creation of the European Economic Community in 1955, the same year Rome was awarded the XVII games. There is a consistent pattern of such dealings by host countries.
But a country doesnt have to actually host the games to reap the benefits. The study shows that the sheer act of bidding for the Olympics is enough to boost trade. Thats because the Olympic Effect has nothing to do with increased infrastructure spending or a change in economic fundamentalstwo benefits usually cited by pro-Games supporters to keep taxpayers in line.
Signalling that the country is capable and willing to host the Olympics through a highly international bid for a mega-event seems to be associated with a sizeable trade-expanding effect on trade, write the authors. Indeed, the effect of sending this signal seems broadly comparable in size to actually hosting the games.
In other words, the best way to enjoy the economic benefits of the Games without digging into taxpayers pockets is to submit a losing bid. Now they tell us.