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| Opportunities & Exposures |
Run for the Money
John S. Irons
08/02/2004
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The Agony of Victory
Perhaps not. I have noticed a curious pattern in the
economic history of countries that host the Olympics. Several years ago, I
compared the performance of these countries before and after the Games. On
average, host countries enjoyed an upswing in their GDP in the run up to the
Games, maxing out at nearly 1.5 percent above average. Immediately after the
Games, however, they suffered a small decline, relative to their average
GDP.
This pattern makes sense. A host country—in the months or years before
the Games—will invest massive resources into the construction of infrastructure
for the Olympics, giving the economy a short-term boost. After the Olympic flame
burns out, the stimulus is gone. The Games may leave the host with significant
bills to pay as well.
Of course, I did not account for the full range of
economic factors that also affect GDP. In a country like the United States, the
Games might prove to be only a blip on the economic radar screen. However, the
Olympic effect on a small country such as Greece may be profound. Countries also
differ to the degree that they rely on various sectors, such as tourism, and
this helps to determine how hosting the Games will affect their
economies.
Tourism accounts for approximately $30 billion (or roughly 15
percent) per year of Greece’s GDP. An upswing in this sector could prove a
financial windfall for this small nation. However, the Games do not always yield
bumper crops of tourists, and the economic impact on host nations is not always
unambiguously positive. There are significant risks to a host nation, especially
one as small as Greece.
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