As most of us are aware, Russia is currently hosting The Sochi 2014 Winter Olympics. Russia hopes that hosting this big event will lead to more jobs and boost its economy. However, some experts argue that Sochi Olympics, which is expected to be most expensive Olympics games in history with cost of over 50 billion dollars, will not boost Russia’s national economy in anyway. The European Bank for Reconstruction and Development (EBRD) argues that hosting the Olympics “may create a lasting legacy for the city of Sochi and the southern Krasnodar region of Russia, which will benefit from improved services that may attract business in the future.”
EBRD says that countries generally do not benefit economically from hosting big events such as the Olympics, but infrastructures and jobs are created and will last for awhile after the events are over. Reports show that “37 projects from the 235 projects undertaken in preparation for Sochi were road projects and the athletes quarters, which will be turned into affordable housing for local residents. “ These projects will help the economy in Sochi for sure.
However, Russia itself will not benefit economically from hosting the event due to the cost. Also, we usually think that Olympics create jobs, but it is different in Russia. Russia currently has low unemployment, leaving limited scope for creating of new employment by hosting big events. So, EBRD is not sure about the economic benefits that Russia will get.However, one positive outcome of hosting the Olympics for Russia is that it will not worsen its debt situation.
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The thinking behind a country sponsoring a major event like the olympic games is that it will temporarily increase employment and production which will serve as a multiplier to employment and production resulting in positive spillovers in subsequent economic cycles. As Gyeong mentions the games will have a relatively small cost to Russia as the games cost is right around 2% of annual GDP. However, even though the costs are small the benefits will likely be smaller because as is noted employment is not a major concern for Russia right now. Often the political implications of the games are a more significant reason for developed nations in their desire to be hosts.
Yes, the multiplier perspective is important.
Note an analog in the US: local government financing of stadium projects. Why shouldn’t the NFL foot the bill? Even worse, teams don’t sign contracts requiring them to stay in the stadium, and in fact some teams have jumped ship for another city despite a new, billion-plus-dollar stadium.
A hypothesis: sports invites such boondoggles. I’ve not taken the time to think about how to verify much less (if I’m empirically correct) why.
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