Should Cities Go for the Gold? the Long-Term Impacts of Hosting the Olympics

By Billings, Stephen B.; Holladay, J. Scott | Economic Inquiry, July 2012 | Go to article overview

Should Cities Go for the Gold? the Long-Term Impacts of Hosting the Olympics


Billings, Stephen B., Holladay, J. Scott, Economic Inquiry


I. INTRODUCTION

On October 2, 2009, Rio de Janeiro won the fight to host the 2016 Olympics. Brazilians celebrated on the beaches of Copacabana, while members of the Chicago2016 Committee (the group organizing the bid on behalf of the city) were stunned at their first round loss. Chicago Mayor Richard M. Daley called the Olympics a "catalyst" for federal mass transit, security, and infrastructure funding and a "once in a lifetime opportunity" to market Chicago as a destination for tourists and business investment. He said "Our goal is to position Chicago to reap the benefits and lasting legacy of investment." The hospitality industry strongly supported the bid not only for the immediate increase in tourism during the Olympics, but also "the international exposure that Chicago will get" from hosting the Olympics (Bradley 2009). Supporters of the Chicago bid argued that hosting the Olympics would lead to significant economic benefits for the city and the region. (1)

Correspondingly, the Associated Press reported that "Rio is seeking to become the next Barcelona, Spain, a city that used the 1992 Olympic Games to improve its infrastructure and transform itself into a more popular destination for tourism and international events." The Rio bid includes significant investment in infrastructure and housing in hopes of spurring future economic growth. Even the International Olympic Committee (IOC) complimented Rio's effort to "transform the region and leave a lasting and affordable legacy" (Azzoni 2009).

Every 4 years, people from all over the world prepare for a truly international sporting and spectator event, the Summer Olympics. For 2 weeks, the host city is overrun with millions of spectators, athletes, and corporate sponsors. No event provides as much media exposure or notoriety to a single urban area. The temporary economic impacts of such an event have been estimated for a number of recent Olympics. For all Summer Olympics between the 1984 Los Angeles games and the 2004 Athens games, estimated economic impacts range from $2.3 billion to $15.9 billion (Veraros, Kasimati, and Dawson 2004). (2)

These impacts are sizable, but likely represent only a portion of the total impact on Olympic host cities and countries. There may be additional impacts because of the improvement or construction of infrastructure (3) needed to host an Olympiad, in addition to the international exposure during and before the 2-week event. In order to account for these supplementary impacts, we need to examine if hosting an Olympiad has any effect on a city or country's future economic growth. Therefore, this research examines city and country population, a country's real Gross Domestic Product (GDP) per capita, and a country's trade openness from 1950 through 2005. (4) These outcomes are based on the idea that a city and country with better infrastructure and international reputation should attract more businesses, investment, and correspondingly people. (5) Of course, long-term positive impacts are not guaranteed because the associated costs of hosting the games (and debt incurred because of the construction of Olympic facilities) likely limit net benefits. (6) This may be the case under a competitive bidding process where cities bid away expected net benefits by promising better venues, greater security, and improved transportation. (7)

Unfortunately, the application of a city to host the Olympics introduces an issue of self-selection. For example, the most recent Olympic host city Beijing experienced above average economic growth throughout the 1990s and 2000s. The strong bid and selection of Beijing in 2002 is likely linked to this economic growth as well as the perceived benefits for Beijing and China in the investment and exposure of hosting the Olympics. Historically, Olympic Games have been exclusively awarded to highly populated urban areas in developed economies with the strong institutional capacity to organize and host an Olympiad.

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