Photo credit: PYEONGCHANG 2018

The Olympics: Not Just an Athletic Competition

The Olympic Games are a time-honored tradition that unites people from all over the world as they watch as their nation’s best athletes compete in a variety of sports on the global stage. But behind the scenes, there’s another contest taking place because hosting the Games could permanently boost a country’s exports.

There’s a raft of evidence that the costs to the citizens of the host city often outweigh the net economic benefits. Cities that compete and win the opportunity to host a global, mega-sporting event typically go all out in their efforts to build new and upgrade infrastructure to support the event. The Olympics are notorious for inducing significant public expenditures by host cities in specialized venues that are later abandoned or go underutilized despite the legacy costs of maintaining them. But the price paid by the host city seems to return benefits in spades for the host country.

In 2009, economists Andrew Rose and Mark Spiegel uncovered a surprising phenomenon dubbed “The Olympic Effect.” Countries that have hosted the Olympics enjoy a permanent increase in national exports of around 30 percent. That’s potentially more impactful than entering into trade agreements. The Olympics aren’t just an opportunity for corporate advertising. They are a powerful national advertisement to foreign investors.

It’s Not Whether You Win, It’s Whether You Bid

Even more surprising, countries that are unsuccessful in their bid to host the games nonetheless enjoy a comparably positive effect on exports. According to Rose and Spiegel, the significant effort — and highly-visible process — to put together and pitch a credible bid to host the Olympic Games it is itself a strong signal to investors regarding a country’s intention to liberalize and its commitment to openness, which has the effect of expanding trade.

Rose and Siegel cite many historical examples where this economic policy signaling of “open for business” coincides with hosting the Olympic Games. Rome was granted the 1960 Olympic Games in 1955, the same year that Italy both joined the UN and hosted negotiations that would lead to the creation of the European Economic Community (EEC). Spain joined the EEC in 1986, the year Barcelona was awarded the 1992 games. Two months after Beijing successfully bid to host the 2008 games in July of 2001, China finished its negotiations with the WTO, thereby securing its commitment to trade liberalization.

South Korea Seeks Commercial and Security Gains

South Korea might therefore expect to see significant gains to national exports coming out of the Winter Olympics in PyeongChang. But there’s more at stake. On January 1st, North Korean Leader Kim Jong Un said that he would be open to an inter-Korean dialogue about the Olympics, a sentiment that South Korean President Moon Jae-in echoed. The Olympics even catalyzed the January 4 agreement between President Trump and President Moon Jae-in to delay joint-military exercises until after the games, so as not to interfere. From cooperation on the opening ceremonies to teamwork among South and North Korean athletes, sports diplomacy underlies reduced risk of North Korean provocations during the games.

NK-SK agreement

Image courtesy of IOC Media via Flickr: North Korea and South Korea sign an agreement on Olympic participation in PyeongChang, January 20, 2018

Competition in Global Sporting Goods

One of the “events” in which private companies can compete in the game of international trade is exports of sporting goods themselves. It’s an industry valued at over $300 billion and its growth has been fueled in recent years by the growing number of platforms for broadcasting popular sporting events globally. Sales in athletic footwear alone are estimated to reach $84 billion this year.

Perhaps not surprisingly, the United States is the largest sportswear market, but China is the consumer market to watch for growth. From building venues to building apparel brands, the Chinese Government wants to see its sports sector top $800 billion by 2025 as a way of goosing domestic consumption and employment. Global producers of sporting goods will compete for first place in China and, like the Olympics, teams are representing countries from all over the world. Hungary, Latvia, Croatia, Slovakia, Bulgaria, and Poland all logged over 10 percent in annual export growth

sporting-goods

Los Angeles 2028

The Olympics aren’t just an opportunity for corporate advertising. They are a powerful national advertisement to foreign investors. So, if you’re a government pursuing economic growth through trade, your strategy just might include a bid to host the Olympics.

Los Angeles will host the 2028 Olympic Games. Start training now – this might be our opportunity to sweep the medal count in global trade.

 

Read this fascinating study: “The Olympic Effect”by Andrew K. Rose Mark M. Spiegel, NBER Working Paper 14854