Revisiting the Olympic Effect

• Date: 01 May 2017
• Published date: 01 May 2017
• DOI: http://doi.org/10.1111/roie.12266
• Author: Rishav Bista

Revisiting the Olympic Effect

Rishav Bista*

Abstract

By utilizing the log-linear gravity model, other authors have found statistically robust, permanent and large

effects of hosting mega-events (e.g. Olympics) on international exports. Surprisingly, they found that the

unsuccessful bidders to host the Olympics experienced a similar impact on exports. Utilizing alternate speci-

fication such as the Poisson pseudo-maximum likelihood (PPML) estimation thatallows for heteroskedastic-

ity prevalent in trade data, the this paper fails to find a robust positive effect of hosting and bidding for a

mega-event on total aggregate exports. Under heteroskedasticity, the parameters of log-linearized models

estimated by ordinaryleast squares (OLS) lead to biased estimatesof the true elasticities.

1. Introduction

According to Gregory (2013), Qatar (population of 2 million) will spend US$200 bil-

lion on the 2022 Football World Cup, which amounts to US$100,000 per capita, com-

pared with US$350 per capita for the Sochi Games (Russia), which was deemed to be

the most expensive Olympics ever. The opening ceremonies of the 2008 Beijing Olym-

pic games are estimated to have cost at least US$100 million. According to a World

Development Report (2007), around 100 million Chinese live on less than US$1/day.

These imposing costs on the hosts might not be compensated by the revenues earned

or legacy of large facilities that are left behind, engendering economists’ skepticism of

these mega-events. Nonetheless, countries fiercely compete to acquire the rights to

host these mega-events.

Rose and Spiegel (2011b) are the first to examine the economic impact of hosting

mega-events (e.g. Olympics, the World Cup) in terms of international trade. Utilizing

the log-linear gravity model of trade, they find that hosting a mega-event has a positive

impact on national exports. The effect is statistically robust, permanent and large.

Exports are, on average, around 20% higher for countries that have hosted the Olym-

pics. Surprisingly, they find that countries that were unsuccessful bidders (henceforth

candidates) to host the Olympics have a similar (in magnitude) positive impact on

exports.

1

They provide numerous robustness checks for their results. They conclude

that the Olympic effect on trade is attributable to the signal a country sends when bid-

ding to host the games, where such a signal is used by countries wishing to liberalize.

They further postulate that hosting the game in and of itself has no impact on a

nation’s trade fundamentals or a big-push type of process (e.g. Murphy et al., 1989).

Rose and Spiegel (2011a) claim that while hosting the games is sufficient to boost

trade, it is not necessary. Unsuccessful bids for Olympics generate similar benefits (in

terms of trade) to those of hosts at a substantially lower cost, comparable with the

* Bista: Division of Finance & Economics, Marshall University, One John Marshall Drive, Huntington,

WV, 25755-2320, USA. E-mail: bistar@marshall.edu. . The author thanks Josh Ederington for his invalu-

able advice and encouragement throughout the course of this paper and Joao M. C. Santos Silva for his

help with the PPML regression estimation. All the errors, omissions and opinions in the paper remain

those of the author.

V

C2016 John Wiley & Sons Ltd

Review of International Economics, 25(2), 279–291, 2017

DOI:10.1111/roie.12266