gE Blog Series: Winter Olympics Part 5 - Economic Effects of International Sporting Events

Russia has spent more than $45 billion hosting the most expensive Winter Olympics in history with the hope of boosting its economy. People are beginning to doubt if this larger expenditure is really worth it. Although people have already seen the Russian ruble appreciate in value, they are still unsure if the Olympics will take Russia out of the time when the economic growth slowed down to only 1.3 percent last year. This article will analyze the economic data of several countries after hosting major international sporting events so you are able to predict how Russia’s economy will perform after the Winter Olympics.

Studies have shown that host countries’ currencies tend to outperform the U.S. dollar during major international sporting events and the average returns in one and two months after the completion of the Olympics or World Cup have been particularly impressive. For example, the South African Rand had a 1.5% increase of return during 2010 World Cup, 4.9% increase in the first month after the end of the event, and 5.6% increase of return in the second month. The strong currency performance is mainly due to the improving economic conditions of the host country driven by the large inflow of tourists and positive investing sentiments.

Local economic growth is also largely lifted by the event.  Construction, event management, and tourism industries demand large number of workers causing unemployment rates to decrease. For instance, 10% of the unemployed found work in the London Summer Olympics of 2012 and they often continued to work after the event. Due to events like the Olympics, more workers participated in the economy and created value in the markets. Some of the legacies of the sporting events, such as the Olympic village, hotels, and convention centers, often boost a region’s long-term development prospects. Atlanta managed to attract additional 280 international companies over 10 years following the 1994 Olympics due to the improved business infrastructures. Do you think Sochi will perform the same way as Atlanta?

The Russian government is confident on the returns from its huge investment to the Olympics. However, some people argue that the increases in tax revenue are unlikely to be sufficient to cover the anticipated growth in budget expenditure. Some might also argue that the Olympics will mainly boost the economy near Sochi and could not make much difference in the national economy. There is so much negativity around Sochi and the Russian government on whether the huge investment will actually improve the Russian economy. What do you think? Let us know what you think by leaving a comment below!