Tuesday, April 08, 2008

The Economics of Post_Olympics

As the Beijing Olympic Torch/Flame - paradoxically, the universal symbol (!) meant to remind the participating countries about "the lasting unity of mankind" - battles its way through the protestors on its way from Olympia to Beijing, there is another aspect worth considering.

Why do countries compete to host the Olymics? What is the economics of event?

Obviously, such a huge event attracts large investments, builds infrastructure, brings in tourism revenue,etc... And leads to a jump in GDP. In addition, there is also earnings through broadcasting rights, sponsorship money, licensing of logo and merchandise, etc.

But what happens after that?

One study compared the GDP growth rate of the hosting countires from 1952 onwards, and compared the deviation in country's average GDP growth rate for 12 year duration (4 pre-Olymic years and 8 post-Olymic years)

This is what the graph shows:



... That is, prior to the Olympics and during the Olympic year GDP growth is higher than average - maxing out at nearly 1.5% above average GDP in the 3rd year before the Olympics. But once the Olymics are over, the growth rate falls much below the average...

Another recent study described on Morgan Stanley's Global Economic Forum also narrates similar trends:

"We looked at the economic performance of the Olympic host countries (OHCs) since 1956. The striking common feature is an acceleration in GDP growth in the year in which the Olympics were held, followed by a year of sub-par growth. Of the 11 cases we examined since 1956, only the US (Atlanta) in 1996 did not show a slowdown following the Olympics. The slowdown was particularly stark in Australia (1956), Japan (1964), the US (1984) and Korea (1988). Spain actually fell into a recession in 1993. In the two most recent Olympics (Athens and Sydney), both Greece and Australia decelerated by 1.5-2.0% between the year before and that after the Olympics.

...Average GDP growth deviation from trend tends to decelerate from 1.1% in the year prior to the Olympics to 0.9% in the year of the Olympics, followed by a slowdown to -1.2% in the following year...

....We also examined the performance of the currencies of OHCs (for post 1972 Olymics)... In Canada (1976), the US (1984) and Spain (1992), the currencies of the OHCs depreciated significantly in the two years after the Olympics. In the case of Sydney (2000), the AUD weakened modestly in the ensuing year. However, in the cases of Seoul (1988) and Athens (2004), USD/KRW and EUR/USD remained essentially flat over the two-year period, while the USD actually strengthened following the 1996 Atlanta Olympics. Therefore, with a few exceptions, the currency of the host country depreciated when its economic growth decelerated following the Olympics."


[The article, interestingly, while acknowedging "the historical regularity with which the growth rate of the country that hosts the Summer Olympics tends to show a pronounced slowdown following the Games", goes on to "conclude" (?!) that in case of Beijing Olympics, "there are special factors that are likely to mute the magnitude of this slowdown."]

2 comments:

gaddeswarup said...

I recently read a few posts on this matter. From:
http://blogs.odi.org.uk/blogs/main/archive/2008/02/29/5520.aspx
"First, the International Food Policy Research Institute has prepared two briefs, available here and here: they track the rapid rise and also explain the causes, estimate the impact and predict trends. The website of the US Department of Agriculture also has new ten-year forecasts. A few key points:

* IFPRI remind us that wheat is up 240% in dollar terms since 2000 and 170% in euro terms. There has been a 40% rise in prices since last June.
* Forecasts don’t show prices rising much more over the next decade (with the possible exception of rice), but don’t show them falling either. This is from both IFPRI and USDA models. Continued high prices are because slow growth in yields interacts with sharply rising demand associated with Chinese growth, biofuel demand etc . . . ODI has useful material on biofuels."
There are some more.
The comments in
http://rodrik.typepad.com/dani_rodriks_weblog/2008/04/syncretic-zoell.html
are also interesting.

Coming from a farming family, I somehow feel that food prices have been kept low and this may be good in the long run for poor farmers. But in the short run, it may be bad for all, particularly the urban poor.
There is also the speculation that after the recent subprime problems, speculators are entering the commodoties market and that make things quite volatile.

Madhukar said...

Prof,

I am posting the response on the intended post (by mistake you left your comment here ;)