| Abstract: |
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. |