Introduction:
There has been a lot of talk about how the summer Olympic Games affect the country (or even the city of large countries) it is held in economically. Through the use of data analysis and linear regression of GDP per capita, and unemployment, this paper will clearly prove that for a series of years previous to and for several years after, all the economical factors do in fact change, typically leaving the country in a slightly better off condition than before the games arrived. The countries that will be examined during this paper will be the previous 6 countries (1988-2008) that have held the summer Olympic Games. These countries being China in 2008, Greece in 2004, Australia in 2000, the United States of America in 1996 (Atlanta), Spain in 1992, and finally South Korea in 1988 (Olympic Committee, The). The reason these countries only will be examined is because they are the previous 6 summer games host countries before there is an overlapping of countries (Los Angeles, California, United States of America), as well as the majority of countries don't have relevant published data until 1971. To be able to do an adequate job analyzing there must be data before an event as well as after the event to make relevant calculations. In addition to undertake the inclusion of this overlapping data (as well as other overlapping data sets) would not enhance the data nearly as much as it would simply confuse. Therefore the data being examined here will go back to South Korea in 1988. Lastly if the data went too far back in time it wouldn't be significant to what is happening in today's world since the Olympic Games have changed so much, even over the past few years to include far more countries, much longer events, and of course the introduction and adaptation of television into the everyday lives of every citizen around the world.
The following will be broken down into three key sections that will illustrate what economical state a host country was in before and after the games, as well as consumer welfare. The first section is going to be mainly focusing on how GDP per capita changed in each country before and after their respective Olympic Games. The second section is going to mainly focus on unemployment rate as well as general government final consumption expenditure (% of GDP). This section will decipher why these topics may have changed as after the games as well as what China and other future host countries could expect to happen in their countries with respect to government expenditure as well as unemployment rate. The final section will discuss household final consumption expenditure as a percentage of GDP. This is the consumer welfare section of the paper as typically consumer welfare is measured by consumption and an increase in consumption (as a percentage of GDP) will imply an increase in consumer utility, which ultimately implies an increase in consumer welfare and happiness. This will all be presented through data, as well as a regression discontinuity model, and lastly economic intuition. Finally it will wrap up in the conclusion making a determination through results displayed, how London, England, and all future host countries for that matter, will potentially be effected economically by the Olympic Games..
Section 1: GDP Per Capita
As mentioned above, this section is going to deal mainly with the topic of GDP per capita. GDP per capita is a good measure of how well the country is doing with respect to how large of a population it has. As one can see from figure one, all countries in question in this paper have an upward trending GDP per capita line. This would imply that throughout the years (not just the Olympic years) there has been a general world trend to have an increasing GDP per capita level. This, however, does not negate the question of 'Do the Olympic games affect GDP per capita?' This question will be clearly answered in this section of the paper.
First it must be decided how to approach this question. Throughout this paper the regression discontinuity model will be used primarily to help display and concrete the ideas set fourth. Also being used will be general economic intuition to help one decipher what is actually happening.
The regression discontinuity model is a relatively simple model that takes into account two time periods. First a period before and up to the Olympic Games coming to town (i.e. for Spain in this sense 1971-1992) and second, a period where the Olympic Games have already left (continuing with Spain this would be 1992-2009) for each respective country. GDP per capita (in this section) will be treated as the Y-variable which will be regressed against a vector column of all ones; this vector column will be treated as the x-variable. The resulting equation being
Y = Beta 0 + Beta 1*X (1)
The resulting data that will come out (Microsoft Excel 2007 is the software used in this paper) in the form of two different numbers; beta 0 and beta 1. Beta 1 is not a number in which is relevant to this paper so beta 1 is discarded. However, beta 0 is the number of value and importance in this test. What is trying to be displayed by this model is how Beta 0 (or the y intercept) has changed from before the Olympic Games, to after the Olympic Games have left. If this number has changed in one direction a majority of times this will imply that the resulting effect could possibly be the ultimate effect the Olympic Games had on the respective category (here GDP per capita). The way this would be illustrated on a graph is displayed in figure 5 below. As one can see in the example figure, the author was using a control group and an experimental group (where this paper is using a before and after scenario) however this is still the same concept, a line is regressed up to a certain point, and another line is regressed after said point, in which the two y-intercepts will be compared to determine of there has been a change.
Dealing with the real data as presented by the World Bank Group as in Table 1. The data in this section was taken from each respective country off www.theworldbank.org (Figures 1-4 as well as tables 1-4 have been created using data from this source). When this data is downloaded it is separated into specific sections in which the researcher must decide which are important (there are over 1,000 different sections to choose from including everything from condom usage in 18 year olds to GDP). The data was then downloaded into Microsoft Excel 2007 to be analyzed. No transformations have been imposed on any of the data in this paper. Next the data was inserted into the software which output the previously described regression lines which are displayed in tables 1-4 (table 1 being of importance in this section).
As one can see, table 1 shows an increase in the beta 0 of GDP per capita for each country. This would imply that a presence of an Olympic event will increase a country's GDP from before the event to after the event. It appears that South Korea in fact improved the most, nearly tripling (200% increase) its GDP per capita from the years before the games to after. However, all the other countries listed (not including China because the data only goes to 2009 and China held its Olympic games in 2008) increased their GDP per capita by a still impressive 50%!
This makes sense, however, this is not the only thing that is going on in these graphs and tables. One must recall the GDP equation which is consumption plus government expenditure plus investment plus net exports (C+G+I+NX=GDP) and that each of these countries is a working country and has wars, new technology, hardships, as well as many other factors that will effect GDP per capita. With all this in mind, the conclusion can still be drawn that the Olympic games seem to boost a country's GDP by a minimum of 50% from before the games to after; one effect that this quick and significant increase in GDP is the possibility of an overheated economy which could possibly create economic turmoil over the ensuing years.
Section 2: Unemployment Rate and General Government Final Consumption Expenditure (% of GDP).
This section will first deal with the unemployment rate and why it could possibly change due to the Olympics, and then it will deal with Government expenditure as a percentage of GDP. Unemployment is defined as an out of work consumer who is seeking a job but due to circumstances out of their control, cannot successfully land one. Unemployment is a topic that fluctuates constantly in all countries and is very relevant in today's world because of all the economic hardship that has decreased the number of jobs worldwide. One could assume that with the construction of one building that will generate many construction jobs as well as supervisors, architects, designers and many more "China's ambitious plans in finishing their extravagant stadium had 30,000 workers day and night to finish the massive structure in time for the games" (Ludwig and Turner 371). This quote in itself shows that well over 30,000 workers were brought in to build China's stadium, this was merely one of the many, many structures that the Chinese government constructed to hold the 2008 games. There has been talk that these 2008 were the most extravagant Olympic Games ever, however, the less extravagant events must still construct buildings, and the only way for them to go up is to hire construction workers to build them. These less extravagant events may not have 30,000 workers on one building; however, since there are multiple buildings going up, it would be acceptable to assume that 30,000 workers minimum would be constructing all buildings for each host site.
These concepts are also displayed prominently table 2. Table 2 deals with pre and post Olympic unemployment rates. The same methods that were exercised above are also in effect here. Equation number 1 is still being used, however, instead of using it and creating regressions for GDP per capita; regressions were made for the unemployment rate in the respective countries before and after Olympic Games. It is clearly displayed (with an exception of Australia because Australia seems to be the outlier in all effects of this paper) that each country decreased by nearly 1 percent or more of the labor force. The United States decreased by nearly 3%. Also, in figure 2 it can be seen that after the respective years of Olympic Games, the country in question plateaus and sharply decreases. Intuitively this does not make sense, if there is a large boost in employment, the unemployment rate should sharply decrease and then when the jobs no longer exist, it should sharply increase again. This is not the case here. The only thing that would make this plausible is the thought that perhaps the host country is outsourcing workers to do either a better job on the project, or to merely save money as outsourced work is typically cheaper. Another reason that this could have occurred is because the workers that were being employed already at construction jobs and such, may have already been employed, which would result in a zero effect on unemployment. Lastly, unemployment could have decreased because workers may have fallen into the 'discouraged workers' section, which is not included in unemployment, due to the significant increase in jobs, and they still can't get one.
The next thing that must be discussed is the topic of government expenditure. Obviously putting on a worldwide event this large is going to take a lot of start up money. Where does that money come from? Not the Olympic Committee, but from the host country's government. How much does this cost? "…after the cost of $1.606 billion of hosting the Games" (Ludwig and Turner 370). This is a tremendous government expenditure for one event that lasts a mere few weeks. In addition to construction costs, one cannot forget that each event put on must take capital and government funds to produce "Chinese pride was apparent throughout the games as the opening ceremony cost over $100 million to produce" (Ludwig and Turner 370) After all that, "Forecasts of the games estimate a $19 million profit" (Ludwig and Turner 370). This is also displayed by a majority of countries in table 3 below. 3 of the 5 countries with sufficient data actually increase government expenditure with respect to GDP by 3 percent, 3 percent and 1.5 percent (With exception to Atlanta, which is a City in a gigantic economic system therefore 2 billion dollars in increased expenditure would not have much of an effect on $10 Trillion (plus) GDP). Also, in Australia, the decrease was a mere .2% which is insignificant in this dataset. All this implies that Olympic Games coming to a host country will most likely significantly increase government expenditure with respect to GDP unless the country is drastically larger than the expenditure (as in the case for the United States). This is also seen in figure 3 where in nearly all the countries, government expenditure increases quickly for several years before the games and then peaks the year they come and decreases slightly in the ensuing years.
There are both positives and negatives to this rapid construction. First, by building all these stadiums and event headquarters for nearly nothing (due to the quick turnaround of gross sales from the games), if in the future the country or home city needs a stadium etc it will already be built and therefore could be used. In addition to just construction "Improving air quality to meet the standards of the World Health Organization, producing cleaner energy through use of natural gas, reducing vehicle use, and the regulation of factories" (Ludwig and Turner 370) was also undertaken in China before the games were allowed to come to the country. These effects will live on for a long time. On the negative side, however, these expenditures can put a great strain on an economy, especially if the predicted profit isn't the actual profit. In addition, government expenditure can lead to increased taxes, decreased consumption, and a whole mess of other problems.
Section 3: Consumer Welfare and What Can China Expect?
Consumer welfare is one of the most important topics in macroeconomics as well as the main topic of microeconomics. Consumers are the driving forces of a capitalistic country, therefore they must be happy to have a healthy economy. One of the easiest ways is to measure consumer welfare is to measure consumption with respect to GDP. Typically a higher consumption will indicate an increased utility (because consumers generally would like to consume more) which also indicates an increase in mood and happiness in citizens and consumers. Consumer consumption with respect to GDP is displayed in figure 4 below. As everyone can see in each country, when the Olympics came to town, consumption, as a percentage of GDP actually increased in the year that the games were there. This is extremely in line with what one would assume if a onetime event was going to come to town and merely be there for a few weeks. In addition to the figure displaying an increase in household consumption, in the regression results from table 4 (which also take on the same type of analysis from section 1 in this paper) 3 of the 5 significant countries in fact increased the Household Consumption with respect to GDP. This overall should make sense because consumers tend to be drawn to collectible items as well as things they can show off to their friends, therefore, consumption should spike in the year that the Olympic Games are there and return to normal quickly.
The above information provides a lot of insight as to what exactly the Olympic Games do to the economy of the a host country since the 1988 Summer Olympic Games. This is extremely important to the country of China as they just undertook the 2008 summer Olympic games a mere 3 years ago, and they are going through this of 'post Olympic' time period that other host countries in this paper have already experienced. It has been called into question as to what will happen to London, England's economy with respect to the summer Olympic Games coming to town in 2012. While it is impossible to predict exactly how this country will be affected, however, through the previous analysis, it is possible to predict with some certainty what could happen.
The first thing that must be called into question is what will happen to England's GDP per capita? If it follows general economic theory and principle, as well as the trends shown by other host countries in this paper, then the logical conclusion is that the Olympic Games coming to town should boost England's GDP per capita's regression beta 0 by roughly 50% between the before and after. Secondly, the unemployment rate and general government final consumption expenditure (% of GDP) need to be examined. As stated in the previous examples, if England's trends stay typical and normal with all countries other than Australia this would imply that unemployment should decrease by roughly 1% across the population. Also, government spending should increase starting a few years before the games come due to construction of buildings as well as planning of events. Then when the games come, government expenditure with respect to GDP should return to normal. Finally, consumer welfare (i.e. household consumption with respect to GDP) as well as consumer utility should spike when the games come, increasing quickly and then decreasing back to normal quickly. Overall, these are generally good things that have been shown to come to light through a country hosting the Summer Olympic Games and London, England should be very excited about what is coming to them.
