Every year millions of people around the world travel either for business, vacation or a combination of both. Tourism is the biggest industry in the world and is continually growing (lecture 1). By the end of the 20th Century total global tourism (international and domestic) has been estimated to be worth at around U.S $3.5 trillion. Tourism has been widely accepted as growth industry and is expected to grow at an average rate of 4% per annum (sharpley and telfer). Both developed and developing nations all around the globe try to take advantage of this fact and in order to achieve greater economic growth and in the case of developing nations to achieve a higher standard of living as well. This makes the tourism industry a very competitive one, with nations trying to attract as many tourists as possible and reap the benefits.
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One way for countries to capture these benefits associated with tourism is to host different events. Getz (2007) identified and categorized them into different scales of events. These range from local and regional events like the Nottingham Music Festival and the European Youth Olympic Festival respectively to periodic hallmark events like the Formula One Grand Prix. The biggest category however is that of the Mega Events which include the Olympic Games and the World Cup. These events are of high tourist demand and have a high value for the host city in terms of economic, environmental, social, cultural and political impacts. It is important for the government of the hosting country as well as the hosting city to use policies to get as much positive effects as possible from these impacts whilst decreasing the negative ones.
Roche (1994) defined mega events as short term events with long term consequences for the cities that stage them. He claims that if a host city is successful in programming the events correctly, a new or renewed image will be projected which would bring long lasting economic benefits in terms of tourism, investment and business. Moreover, he claims that with this new or renewed image the host city is able to become a center of capital and labor, production and exchange in the national and global economy (Roche, 1994). Therefore, it can be argued that the economic aspect of the Olympic Games is the most significant one and the economic legacies left behind by such events can change and reshape entire cities.
In order to gain a better understanding of the economic impacts of mega events, and more specifically of the Olympic Games, these impacts must be separated in accordance to whether they happen before, during or after the event (Li S. & Blake). An analysis will follow that will explain these different stages in terms of the Olympics and the relevant economic impacts as well as the policies the government can adopt to gain the maximum positive outcomes of the event.
The pre-game period is a time of planning and deadlines, investments both private and public and construction. Moreover, once the city wins the bidding process the news of this fact are echoed all around the world. This may tempt tourists to visit the country prior to the event. The period during the Games has certain economic impacts that come from the tourists and the revenues the event brings and it is a way to show the world the change that the city underwent through the media exposure that surrounds the Games. The most important period is after the Games however, since it is when the results will start to take effect. This is the aim of the host cities, to capture the long term economic effects or the economic legacy the games create. The economic legacy involves the extra tourists that will want to visit the host city; businesses may be attracted to relocate there; the establishment of the city as a business hub and generally the increased economic growth to the host city as well as the whole economy of the country.
First of all, one of the characteristics of the Olympic Games is the amount of money it attracts that is subsequently invested in them during the pre-game period. These funds come from the public and private sector and are spent on the construction of sport venues, tourism facilities and infrastructure (Sakai, 2006). These funds are different from the organizational costs the Olympic Organizing Committee has. The organizational costs relate to items not usable after the Games whereas the investments mentioned above will continue to serve the city in the future. The Barcelona Olympics of 1992 had total organizational costs of 1.364 billion U.S Dollars ($) and investments amounting to $8.012 billion (Poynter, 2006).
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By looking at this from an economics point of view, investments are part of the circular flow of income, it is an injection, and as such bring economic growth and job creation and has long term effects (Sloman, ). Barcelona for example, focused 61.5% of these investments for construction work which includes transport infrastructure, housing, offices and business premises, telecommunication and services, hotels, sports facilities and environmental infrastructure. This is a clear indicator of Barcelona’s restructuring effort (Brunet, 2005).
Furthermore, the construction effort that is being funded will bring increased employment in the city, decreasing unemployment and as a result increase the standard of living of its local citizens. In Barcelona, unemployment rates fell from 18.4% in 1986 to 9.6% in 1992 (Brunet, 2005). If the standard of living is raised, there will be great social effects (a decrease in crime due to the rise of employment, people would want to live in better conditions and will be able to afford them as well as many more). These in turn can bring greater economic impacts because tourists visiting the city will be able to see the change and difference and the probability of experiencing an enjoyable stay will increase substantially. This might affect them to consider visiting the city again, during the games or after, and they may spread their experiences through word of mouth, indirectly advertising the city.
These benefits however all depend on how the government decides to invest the money. Barcelona invested heavily in infrastructure $8.012 billion and the benefits can still be seen today, whereas Sydney only spent $3.03 billion (Poynter, 2006). In addition to this, it is important to include the opportunity costs associated with the building of Olympic Venues. According to Owen (2005), these investments must not be considered as benefits for the economy but rather as costs. This is because opportunity costs are very high since the money spent on Olympic venues could have been spent on other public needs like health and education which also leads to long term economic growth (Li, Blake). Taking the example of Barcelona again, the spending associated with Olympic venue construction (9.1%) is insignificant compared with the 61.5% allocated for other infrastructure. As stated above, investment in infrastructure is an injection which brings long term economic benefits and Barcelona invested heavily in that area. This may be one of the reasons why Barcelona has had steady economic growth the twelve years after the games.
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