The Macroeconomics of Sport

"Ater he and his team successfully bid for the 2010 Commonwealth Games Indian Olympic Association President Suresh Kalmadi has now set his sights on bringing the 2016 Olympic Games to New Delhi.".... so blared the headlines one fine morning...

As always, it evoked mixed responses....A political party was screaming for his neck.. What was the need to spend so much on matters of trivial importance like Commonwealth Games and the Olympics, when millions are battling far more grave problems like hunger and poverty? Yet another group was buoyant... This will put our country on the world map! Millions of foreign tourists will visit our country and spend their money here, buying our products..

To confess, I was on the skeptical side. Forget the fact that it has been a long time since we won even a single Olympic gold..... Does the huge investment demanded by mega events like Olympics and Commonwealth actually make sense? We could conduct a simplistic event study to verify using emperical evidence whether hosting the Olympics has had any significant bearing on the GDP growth rate.

Event: Hosting the Olympics
Variable: GDP growth rate (pre-event vs post-event)
Time window: +/- 3 years

Here, we have taken the growth rate as the variable because it takes care of scale effects. Thus, while computing the average results across all hosting countries we can assign equal weightages to all of them.

The results of this study are startling!!! We see from the table that in fact, hosting the Olympics is a huge liability. It retards GDP growth rate by 0.07% We can observe from the table that this is in fact a conservative figure. By excluding the US from the table, the GDP growth actually slows down by a much larger rate of 0.76%.




We could also conduct a similar study for an event on a much smaller scale - The Cricket World Cup. The results we obtain in this case are totally contradictory. We can see a net benefit of 0.43% for the host country, on an average...

What are the causes for the above observations? I wouldnt dare to offer an explanation....
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References : http://en.wikipedia.org/wiki/Event_study (Event Study)