If You Host the Olympics, Will You Get Higher Economic Growth?

Understanding the financial and economic impact of major investments like the Olympic Games and big infrastructure projects is critical for governments to make sound decisions about their expenditures. This is even more the case with the covid-19 pandemic, where debt-based major investments are used to stimulate the economy in attempts to avoid recession. After the splurge on the pandemic, a global economic climate of austerity in government spending is likely to return, in order to bring debt down again.

To illustrate the relationship between hosting the Olympics and economic growth, consider the Athens 2004 Games. Here cost overrun and associated debt from the Games weakened the Greek economy and contributed to the country's deep financial and economic crises, which began in 2007 and was dubbed the "forever crisis" by The Financial Times, because it seemed to never end (Flyvbjerg 2011, Kuper 2017).

Similarly, in June 2016 – less than two months before the Rio 2016 opening ceremony – Rio de Janeiro's governor declared a state of emergency to secure additional funding for the Games. When Rio decided to bid for the Olympics, the Brazilian economy was doing well. Now, almost a decade later, costs were escalating and the country was in its worst economic crisis since the 1930's with negative growth and a lack of funds to cover costs.

This is a common pattern due to the cyclical nature of recessions: if the economy had high GDP growth when a city decided to bid for the Games, which is typical, then during the seven to 11 years until the opening ceremony the economy is likely to weaken, as shown in the following figure, which shows the average GDP growth for host nations before, at, and after the Olympic Games, for all Games since 1960. Year 0 on the first axis is the year of the Games:

Potential hosts – and especially those with small and fragile economies – will want to make sure they do not end up like Athens and Rio. They can protect themselves by undertaking a realistic assessment of costs and cost risks before they bid for the Games.

For how to do this, and for full references to the above text, see:

Bent Flyvbjerg, Alexander Budzier, and Daniel Lunn, 2020, "Regression to the Tail: Why the Olympics Blow Up," Environment and Planning A: Economy and Space, published online September 15, free pdf available here: https://bit.ly/3bYfMWO.