The 2012 London Olympics opened on 27 July. This has been the result of years of planning and investment in infrastructure since London won the bid in 2005.
It is estimated that hosting the Games will have cost over £9bn. It is therefore interesting to consider the long-run impact on a host city years after the last medal has been won. We might expect host cities to achieve increased growth due to the benefits from the improved infrastructure and the impact of increased publicity and exposure on trade, capital and population.
This has recently been investigated in a paper published in the Economic Inquiry by Stephen Billings and James Holladay which looks at the impact hosting the Games has on GDP and trade (working paper available here). One difficulty with trying to identify the impact of hosting the Games, is that only certain cities will have a chance of being chosen as hosts and these may be cities that are more likely to experience future growth. If this is the case, it would appear that the future growth was due to hosting the Games when it would in fact have been likely to occur anyway. In order to control for this, the above paper compares the winners with losing finalists in the selection process for host cities. For example under this approach London would be compared with Singapore, Moscow, New York and Madrid. In addition, subsequent matching processes are also used to select appropriate cities for comparison.
They find that larger cities in wealthier countries are more likely to be chosen to host the Games. However, once comparisons with other appropriate cities are made, overall, they find that hosting the Games has no effect on a cities population, growth or trade. One explanation provided is that the intense competition to host the Games means the potential gains are competed away via escalated promises in order to increase a cities chances of being selected. In addition, they note that there may well still be considerable specific benefits from the investments made to host the Games.
It is also clear that there are both positive and negative externalities from hosting the Games that, whilst difficult to measure, ideally should be taken into account. On the negative side, these include the extra hassle anybody travelling to work in London during the Games will face. On the other hand, on the positive side, it is hoped that part of the long-run legacy of the Games will be increased interest and participation in sport which would result in substantial health benefits.
David Cameron claims London 2012 will bring £13bn ‘gold for Britain’ The Guardian, Hélène Mulholland (05/07/12)
Olympic legacy: how the six Olympic boroughs compare for children The Guardian, Simon Rodgers (19/07/12)
London 2012: Olympics legacy hard to define BBC News, David Bond (13/07/12)
- Explain how intense competition to host the Games might result in benefits being competed away.
- Can you think of any other externalities resulting from the Olympic Games?
- Why are the impact of externalities difficult to measure?
- What other factors should be taken into account when assessing the costs and benefits of hosting the Games?
- Do you think the decision to bid to host the Games should be purely based on a cost-benefit analysis?