In his essay discussing the economic effects of hosting the Olympics, Adam Blake states, "the wider economic impact of the Olympic Games includes the effects the visitors have...through their expenditures in the host city, the developmental benefits of targeted infrastructural investments...and the long term 'legacy' benefits that the increased exposure to the international media brings" (p. 4). Obviously, the opportunity to host the Olympics automatically increases tourism, both before, during, and after the Games. Tourists will spend money on airfare, hotels and accommodations, merchandise, and tickets. Overall, these tourists are pumping money directly into the host country's internal economy. However, achieving economic success is not always as easy as it sounds.
In the past, host nations of the Olympics have actually lost money because of the Games. The Games of 1972 and 1976 in Munich and Montreal respectively lost over eight hundred euros combined. On the other hand, Barcelona and Los Angeles netted profits of over two hundred million. Because of this discrepancy, it essentially comes down to the organizational capacity of the host nations planning committees, as they have to balance their own individual market size and capacity, television deals, infrastructure costs, and other expenditures.
In order to effectively plan an economically profitable event, Blake describes the use of "input-output models" in order to define the levels of spending brought on by tourists from the event as well as the increased internal expenditures generated by the event. Secondly, Blake compares this model with the Computable General Equilibrium Model, which differs from the input-output model in that the CGE imposes constraints on the relationships between certain factors such as income to spending or the availability of factors of production. In short, in planning for the Olympic Games, the necessary economic approach involves balancing your own internal expenditure increases while accurately forecasting the increase in revenue from hosting the Games. With this key at the forefront, organizers have to justify every purchase and calculate the anticipated return from expenditures in order to end up with an economically successful Olympic Games.
Another important concept to note is that the financing of any debt as a result of the Olympic Games is the responsibility of the host city. Furthermore, debts are almost inevitably going to occur because the majority of the infrastructural investments are funded through borrowing. As for London, the British Olympic Committee has vowed to invest in infrastructure that will provide long term value, and not in excessive and unpractical services that will prove worthless following the Games. Furthermore, the opportunity cost of hosting the Olympics is discussed in depth while analyzing the economic consequences of the Games because it is extremely difficult to put a monetary value on people's time and the allocation of resources. Even deeper analysis can be put into environmental costs of the Games, namely pollution, congestion, and increased emission levels, which ultimately result in more money spent by the host city in years to follow the Games.
Overall, according to Adam Blake's study, London can expect its GDP to rise by 1.9 billion euros if it has the Games (compared to what it's GDP would be not having the Games). Increased employment rates and capital reserves are also expected results from the Games, as well as increased tourism following the actually Games itself. All in all, I believe the Games will have a positive economic impact despite the high levels of spending necessary to host an event of such magnitude.
http://utsescholarship.lib.uts.edu.au/dspace/bitstream/handle/2100/994/Impact%202005_5.pdf?sequence=1
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