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The Economic Impact of the Olympics

With the Olympics
being held in Syndey this year, I wondered if perhaps the performance of
the economy was being affected in part by the the fiscal
stimulus
provided by Olympic related construction in Sydney and other
parts of the country.

Australia’s Economy
has been performing well recently, suggesting that there might be some
effect (See graph). Over the last 5 years growth in Australia’s gross domestic
product (GDP)
has averaged 4.35%, almost a full point above it’s 30 year annual average
of 3.5%, and the unemployment rate is near a 10 year low.

  • According to
    one
    estimate
    , the Olympics will tack on an additional $6.5 billion – about
    1.6% of GDP – to Australia’s GDP over the 1994-2006 period. Over 35,000
    people have worked on Olympic related construction sites.

Is it the Olympics?

A natural question
to ask is if this growth is due primarily to the Olympic preparation, or
if, instead, it is result of some other change in policy, or perhaps just
plain-old luck.

One way to address
this question is to see if other host countries have
experienced increases in GDP around Olympic years. Below is a graph of
one measure of the boost to GDP that countries receive from hosting the
Olympics. (Each point represents the average, over all of the host countries
since 1952, rate of growth of GDP in the host country less the 12 year
average for that country.)

What this graph
suggests is that prior to the olympics and during the olympic year GDP
growth is higher than average – maxing out at nearly 1.5% above average
GDP in the 3rd year before the Olympics. (This number seems consistent
with the estimates for Sydney – at least prior to the Olympic year.) However,
the graph also suggests that growth rates are lower in the years after
the Olympics, than in the years prior.

[Please note –
this data is only suggestive. There is a vide range of economic experiences
across countries and the deviations from the mean rate of growth in the
graph are most likely not statistically significant. A careful analysis
of the data would take into account a wider range of economic data – both
in type and in time periods – and would much more careful about the statistical
inference. Anybody want to run a VAR and test for a structural break? Source:
Data from IMF,
Penn
World Tables v5.6
, author’s calculations.]

Downturn after
the Olympics?

After the medals
have been handed out, the podiums taken down, and life returns to normal,
will the economy then slow? From the graph above, is seems as though the
average performance of host countries’ economies has not been as robust
as prior to the olympics when the bulk of construction expenditure was
being undertaken.

Hopefully the
Australian policy makers realize this and can offset any downturns thus
allowing economy to continue it’s strong performance in future years –
and to “go for the gold”… so to speak.

More

Soccer’s World Cup and the Economy

Economics
Articles

More readings

For a good overview
of the current state of the Australian Economy see Economic
Roundup – Autumn 2000
from the Treasury.

The
Export Impact of the Sydney Olympics


Trade
outcomes and objectives statement 2000


Olympic
Co-ordination Authority


Official
Site of the Sydney 2000 Olympic Games

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