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The IMF Surveys the Impact of Mega-Events

The latest issue of the IMF's journal, Finance and Development, has a number of essays on the impact of hosting events like the Olympics and the World Cup. Andrew Zimbalist's paper "Is it Worth It?" is a brief but balanced and fact-filled summary. Here is a sample:

[I]n Sydney, Australia, it now costs $30 million a year to operate the 90,000-seat Olympic stadium. Many of the venues used in the 2004 Athens Games are either vacant or seldom used and occupy valuable land in a crowded urban center. The Beijing Games left a legacy of several expensive buildings, including the elaborate Water Cube swimming facility, which is severely underused. In contrast, successful events, like the Los Angeles Summer Olympics, use existing facilities as much as possible, making good use of scarce urban land. The stadium used for the opening and closing ceremonies in the 1996 Atlanta Games was reconfigured into a baseball stadium immediately after the games. Olympic planners need to design facilities that will be useful for a long time and that are constructively integrated into the host city or region.

The essay by Andrew Rose and Mark Spiegel is of particular interest, as it discusses a novel finding in their 2009 paper "The Olympic Effect." Rose and Spiegel present evidence that countries that bid to host the Olympics enjoy a permanent increase in international trade. Here is the abstract to the 2009 paper:

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.

It is not clear how this rather large impact on trade can be reconciled with the lack of impact on GDP. Perhaps there is both a signaling effect and a winners curse effect that operates here. At any rate, the full Rose and Spiegel paper (pdf here) is certainly worth calling attention to.

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