Mega Events

The unexpected economic return of the Olympics

By Bill Snyder

 

Shortly before London’s 2012 Olympics, British television watchers learned the $15 billion price tag for the games would grow by at least another $1 billion. Soon after, a BBC poll found 64 percent of Brits thought their government was spending too much on the games. But do the costs of the event really outweigh the economic benefits?

 

“The basic mystery is why there’s so much fanfare for a country to spend billions of dollars to welcome the world for a very short period of time. Does it make sense?” asks Haas Professor Andrew Rose, who studied the question in a 2011 article in The Economic Journal co-authored with Federal Reserve economist Mark Spiegel.

 

Many economists say no, “mega events” offer little economic return. But Rose says the answer is more complex.

 

For developing countries like South Africa or China, the expenditures can lead to significant economic gains. Rose and Spiegel found “strong evidence of a large positive effect (some 30 percent higher) of the Olympics on exports.”

 

That’s because staging a major event signals the host country is ready to liberalize trade and join the world community. It’s a signal directed externally to potential trading partners, and internally to businesses considering investments to expand trade.

 

Take China. In 2001, two months after Beijing won the right to host the Olympics, China successfully concluded negotiations with the World Trade Organization. Similarly, Rome was awarded the 1960 games in 1955, the same year Italy joined the United Nations. The 1964 Tokyo games coincided with Japanese entry into the International Monetary Fund. And the 1986 World Cup in Mexico coincided with the country’s entry into the General Agreement on Tariffs and Trade.

 

The real benefit does not flow directly from the games themselves; in fact, huge expenditures for infrastructure such as stadiums that will only be utilized for a few weeks are foolish, says Rose. For London, which hosted two previous Olympics and is at the center of a highly developed trading economy, the Olympics are probably not a wise expenditure, he says.

 

So, if the mayor of London had asked his advice before bidding for the Olympics, what would Rose have said? “I would have told him it’s a bad idea, and people will blame him for it.”

 

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