Posted by John Irons at September 17, 2000 02:04 PM

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

Host Countries Athens, Greece, 1896 Paris, France, 1900 Saint Louis, Missouri, U.S., 1904 London, England, 1908 Stockholm, Sweden, 1912 Antwerp, Belgium, 1920 Paris, France, 1924 Chamonix, France, 1924 Amsterdam, Netherlands, 1928 St. Moritz, Switzerland, 1928 Los Angeles, California, U.S., 1932 Lake Placid, New York, U.S., 1932 Berlin, Germany, 1936 Garmisch-Partenkirchen, Germany, 1936 London, England, 1948 St. Moritz, Switzerland, 1948 Helsinki, Finland, 1952 Oslo, Norway, 1952 Melbourne, Australia, 1956 Cortina d'Ampezzo, Italy, 1956 Rome, Italy, 1960 Squaw Valley, California, U.S., 1960 Tokyo, Japan, 1964 Innsbruck, Austria, 1964 Mexico City, Mexico, 1968 Grenoble, France, 1968 Munich, West Germany, 1972 Sapporo, Japan, 1972 Montreal, Canada, 1976 Innsbruck, Austria, 1976 Moscow, U.S.S.R., 1980 Lake Placid, New York, U.S., 1980 Los Angeles, California, U.S., 1984 Sarajevo, Yugoslavia, 1984 Seoul, South Korea, 1988 Calgary, Alberta, Canada, 1988 Barcelona, Spain, 1992 Albertville, France, 1992 Lillehammer, Norway, 1994 Atlanta, Georgia, U.S., 1996 Nagano, Japan, 1998 Sydney, Austrailia, 2000

Posted by John Irons at September 17, 2000 02:04 PM