The Winter Olympics which are about to begin present an interesting example of public sector crowding out. The article mentions that the Russian economy has been on a downturn lately in the time since the Olympics was awarded to Sochi. In that time the Russian government has spent approximately $50 billion on preparations for the games. In part the article claims that this is "caused by an erosion of most other commodity prices and a dearth of new foreign investment." It seems that the massive investment of the government had the effect of increasing interest rates by decreasing investment.
Given that the Olympic games are such a spectacle and brings a lot of attention, is it worth the potential crowding out of private investment that can occur when the government embarks on a massive project?
This is an interesting subject that I have not put much thought into before. Do you think that it would make more sense for the Olympic committee to only consider countries that can more readily handle the financial obligations that come along with hosting the Olympic games? Or should it remain in the hands of the countries that are trying to host?
ReplyDeleteSince the Olympic Games will certainly attract a lot of foreign visitors thus boost consumption in Russia's economy for the duration of the games, it will be interesting to see if the revenue generated by the tourists are worth the potential crowding out. It will also be interesting to see the if fear of terrorist attacks affect the number of people going to watch the games.
ReplyDeleteThis is an interesting trade off that countries do face when deciding to hosts the Olympic Games. I am curious to see how much revenue the country will bring in during the games through massive amounts of tourist activity in the area.
ReplyDeleteI believe that Russia is not the first country to do this. Montreal, when it hosted the Olympics went bankrupt (2010) and in Germany there is the Olympic village that is a giant storage area since it is not used for anything.
ReplyDeleteMany countries have problems when it comes to hosting a World Event. Although each country’s challenges maybe different, but in many ways they are the same. For example, Brazil will be hosting the World Cup this summer and the country is having a hard time keeping its inflation down. The government in Brazil is expected to spend over 13billion dollar just on project around the host cities while trying to keep its inflation down. While the Olympic in Russia the government’s spending is causing a decrease in investment.
ReplyDeleteDue to the large amount of money that goes into creating a new stadium in a different country every year and the uselessness of the space after the games have finished, I wonder if it would be a reasonable suggestion to create a permanent stadium in a fairly neutral location. Countries could still bid to "host" the games, potentially by putting money up for the care of the stadium and making sure it was up to par before their games, still fostering that idea of international events. But, given the effects on the host countries, a smaller fee might not end up having the same economic shock as building an entire new venue and putting so much money into something with a high risk of not returning the investment.
ReplyDeleteI think when selecting host cities for world events, it is extremely important to consider the financial stability of the country, which may be overshadowed by political stability. While a country can have major economical gains from hosting, Sochi is a prime example of how it can backfire. There have been many hosts that are still paying for the debt, but the immensity of this budget might send them over the edge.
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