Media Briefings

The Olympic Effect: How Hosting Or Bidding For A ‘Mega-Event’ Boosts National Exports

  • Published Date: June 2011

Countries that host the Olympic games and other ‘mega-events’, such as the World Cup, enjoy a large and permanent increase in trade. That is one of the findings of a study by Professors Andrew Rose and Mark Spiegel, published in the June 2011 issue of the Economic Journal.

But while hosting a mega-event is sufficient to boost trade, it is not necessary. In practice, the researchers find that countries that bid for the Olympics unsuccessfully also experience a boost in trade, comparable to that received by actual Olympic hosts.

This result implies that the ‘Olympic effect’ on trade does not stem from a change in economic fundamentals, caused by the activity or infrastructure associated with hosting the Olympics. Instead, the empirical findings suggest that bidding for the Olympics is a costly policy signal that is followed by future liberalisation. For a country pursuing a trade-oriented development strategy, such an outcome would clearly be attractive.

The motivation for hosting a mega-event like the Olympics seems elusive to most economists. For example, the opening ceremonies of the 2008 Beijing Olympics are estimated to have cost at least $100 million when around 100 million Chinese live on less than $1 a day. Plausibly measured net economic benefits are rarely large and typically negative; and claims of non-economic benefits are difficult to verify.

Yet in practice countries compete fiercely for the right to host such events. Why? This research identifies one potential explanation, showing that hosting the Olympics has a positive impact on national exports. This effect is statistically robust, permanent and large: trade is over 20% higher for countries that have hosted the Olympics. Such a huge impact would go a long way towards offsetting the large costs.

Why is hosting a mega-event associated with extra trade? It is not because Olympic hosts greet more tourists or appear on TV screens for a few weeks (as the International Olympic Committee claims). Rather, hosting a mega-event seems linked in practice with trade liberalisation.

In July 2001, Beijing was awarded the right to host the games of the XXIX Olympiad. Just two months later, China successfully concluded negotiations with the World Trade Organisation, thus formalising its commitment to trade liberalisation.


This is not a once-off coincidence. Rome was awarded the 1960 games in 1955, the same year that Italy started to move towards currency convertibility, joined the United Nations and, most importantly, began the negotiations that led two years later to the Treaty of Rome and the creation of the European Economic Community (EEC).

The Tokyo games of 1964 coincided with Japanese entry into the IMF and the OECD. Barcelona was awarded the 1992 games in 1986, the same year Spain joined the EEC. The decision to award Korea the 1988 games coincided with the country's political liberalisation. The correlation extends beyond the Olympics: the 1986 World Cup was held in Mexico, coincident with its trade liberalisation and entry into the GATT.

But it is not only mega-event hosts that benefit from the Olympic effect. The research finds that even unsuccessful bids to host the Olympics have an impact on trade, one every bit as big as the effect of actually hosting the games. This suggests 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.

A country that wishes to liberalise its trade may want to signal this by bidding to host a mega-event. In so doing, it generates extra trade-related investment and, more importantly, creates a political atmosphere where backsliding on either trade liberalisation or the mega-event becomes difficult.

Big trade liberalisations, just like mega-events, are rare and expensive events that are highly visible and have long lead times. And the costs of hosting a mega-event are also typically born by the segments of the economy that benefit most from trade liberalisation. This alignment of costs and benefits makes a mega-event an effective signal of liberalisation.

ENDS

Notes for editors: ‘The Olympic Effect’ by Andrew Rose and Mark Spiegel is published in the June 2011 issue of the Economic Journal.

Andrew Rose is at the University of California at Berkeley. Mark Spiegel is at the Federal Reserve Bank of San Francisco.

For further information: contact Andrew Rose on +1-510-642-6609 (email: arose@haas.berkeley.edu); or Romesh Vaitilingam on +44-7768-661095 (email: romesh@vaitilingam.com).