DP7248 The Olympic Effect

Author(s): Andrew K Rose , Mark Spiegel

Publication Date: April 2009

Keyword(s): mega-event , data , signaling , trade , liberalization , host , candidate , model

JEL(s): F19 , L83

Programme Areas: International Macroeconomics , International Trade and Regional Economics

Link to this Page: www.cepr.org/pubs/dps/DP7248.asp.asp

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.