Markets and Finance: Is Olympics a boon or boondoggle?

The much-hyped Abu Dhabi Formula 1 race came and went, marking the end of the motor racing season. A visual feast, no doubt.

But at home, the season is one of discontent: my son is sore at me for not taking him to the races, and my wife and daughter believe that if I had made an effort they could have got free passes to some of the musical extravaganzas that accompanied the event. Much to my discredit, a journalist friend did manage to get some of those tickets.

To cool the mounting tension at home, I have pledged to take them to the events next year. Well, frankly, I already am working on a few good enough reasons to be able to wriggle out of that promise.

If the Grand Prix has created minor rebellion at a not-so-sports-friendly family like mine, one can imagine the attention the event has attracted from sports fans around the world.

Last week, following Dubai's earlier declaration to make a bid to host the 2020 Olympics, the government stepped up its preparatory work by setting up a committee to supervise the project.

The direct benefit of hosting such mammoth sports events have been often a subject of academic dispute. "For host cities generally, sponsorship seems to be a mixed blessing. A number of studies suggest that Olympics-related economic growth is often a case of wishful thinking, and that positively-spun scenarios often don't differentiate short-term consumer spending from long-term growth," says a recent paper from Wharton School.

Then why are governments and leaders around the world so eager to host such events that inevitably are enormously expensive?

President Obama flew to Copenhagen in September to make the case for Chicago's Olympics bid. President Lula of Brazil cried in jubilation as Rio was the winner. People across Brazil broke into a week-long extempore party to celebrate. The answer lies probably in what China got out of the Olympics. Economists in general believe that the Olympics worked as an early economic stimulus for China, when the rest of the world was still debating stimulus spending to fend off the recession. That might simply have been a matter of useful timing.

Impact

A recent study by two economists — Andrew Rose of the University of California, Berkeley, and Mark Spiegel of the Federal Reserve Bank of San Francisco — found that, after an Olympics, host countries' export trade generally increases.

In an examination of 196 countries' economic performance between 1950 and 2006, they found that former Olympics-host countries tend to have 30 per cent more export growth than the average, non-hosting country. Not only that, "the games do not seem to act as simple export promotion, but are instead associated with an increase in two-way trade between the host and the rest of the world," they wrote in their April 2009 paper.

That being the case, Dubai does have good enough reasons to bid for the 2020 Olympics, a showcase with the promise of creating extra growth momentum. And I have a convincing enough excuse to tell my folks next November that it would be better to wait for the mother of all sporting occasions.