Sports events’ effect on International Trade

Abstract：This paper proposes a direction of researching relatively smaller sports events’ influence on international trade. First， use the gravity model to get the relationship between trade volume and holding the sports event. Then， by identifying each international sports event’s total online and offline audiences， the sports events can be categorized into different scale level. Finally， run a regression between each scale and their influence on trade volume， a result can be drawn.

Key Word： Sports Events；Scale；International Trade；Gravity Model

1.Introduction

1.1Background of the study

There are numerous kinds of sports events， either large or relatively small， being held around the world. Many countries compete fiercely for the right to host the most prominent and influential sports events. However， the cost of hosting the Olympics is also astonishing. It is reported that China invested about 43 billion US dollars during the Olympic Games. A substantial part of this money is planned to upgrade the city’s transportation system. Recovering such a sizeable investment seems unrealistic. Economists usually question about whether hosting these types of mega sporting events can be profitable. But when discussing whether a country should host a mega sporting event， many factors other than short-term economic benefit should be taken into consideration， such as politics. Hosting mega sports events may allow countries to show a clear sign that they intend to intensify their participation on the world stage， and the benefits of doing that may be tangible. Helping countries join world economy is one way of showing mega sports events promote international trade. Many scholars also argue that mega sporting events may serve as costly strategies through which countries can credibly signal their intent to pursue more open trade policies.”

1.2Problem Statements

Mega sports events’ benefits and long-term influences on countries are studied by plenty of scholars and the results always come out positive. But do non-mega sports events have the same impact？ My focus is about sports events which are relatively not that mega or large scale， and their effects on international trade.

1.3Significance of study

Indeed， mega sports events are influential and beneficial to countries， but to host one， many obstacles and difficulties must be faced. First， it is difficult to get the right to host since there are many strong candidates. Second， hosting a mega sports event is exceedingly costly， since new stadiums should be built， and infrastructures such as transporting system need to be upgraded. Accordingly， hosting a mega sports event may not be realistic and affordable for some small country. Relatively small scale sports events have their own advantages， such as low cost， and hosting them doesn’t need highly comprehensive preparation. Plus， for countries that have ambition to host mega sports events in the future， to gain experience by hosting a smaller one would be a nice choice. But there is no clear conclusion about the impact of non-mega sports events.

2.Literature Review

Theresearches about this topic mainly aim at two directions. First， the short-term economic benefits from hosting the mega sports Games， which is the direct economic return of a sporting event. “The economic impact on the state of Georgia of hosting the 1996 summer Olympic games” by Humphreys， J. M.， and M. K. Plummer in 1997 measures the overall cost and income of the Games. The result turns out that the whole revenue was 5.1 billion dollar. The significance of this sort of researches is offering references for countries which intend to bid for a sporting event， to help the countries making plans and budget.

The second direction is studying the indirect effect of sports events on trade.Helping countries join world economy or trade organizations is one way of showing mega sports events promote international trade. Many proponents argue that hosting Olympic Games will promote a nation's exports. “Do Mega Sporting Events Promote International Trade？” By Andrew K. Rose and Mark M. Spiegel， 2011， used a standard “gravity” model of trade to predict that trade volumes between two countries will be a function of their distance and several other explanatory variables.

The results indicated strong evidence of a large positive effect （some 30 percent higher） of the Olympics on both exports and overall trade. The permanent “Olympic trade effect” on exports is large and positive.” Their answer to this puzzle is that “mega sporting events such as the Olympics may serve as costly strategies through which countries can credibly signal their intent to pursue more open trade policies.” That is “Sporting events as a signal”， to show the world that this country is willing to embrace the world. Such a costly signal is an exhibition of nation’s strong power and ambition.

3.Research Methodology

My original model is still based on the standard “gravity” model， and my innovation is that when selecting sample， I “level” or “categorize” the sports events first.

The sports events selected must have such features： it needs election to host it； it cannot be a routine competition， such as French Open， whose time and place are fixed； it should be an international competition involving multiple countries； it’s scale cannot be too small.

Use “Total number of attendance” plus “Total number of online watching people” as standards to level the sports events’ scale since they can represent the even’s influence.

The next step is determining other variables involved.

where i denotes the exporting country， j denotes the importer， t denotes time， ln（.） denotes the natural logarithm operator， X_ijt denotes real FOB exports from i to j， measured in millions of dollars， D is the distance between i and j， Pop is population，GDPpc is annual real GDP per capita， Cont is a binary variable which is unity if i and j share a land border， CU is a binary dummy variable which is unity if i and j use the same currency at time t and zero otherwise， Lang is a binary variable which is unity if i and j have a common language， RTA is a binary variable which is unity if i and j have a regional trade agreement at t， Border is a binary variable which is unity if i and j share a land border， Island is the number of island countries in the pair （0/1/2）， Area is the log of the product of the areas of the countries， ComCol is a binary variable which is unity if i and j were both colonized by the same country， Colony is a binary variable which is unity if I colonizes j at time t （vice versa）， EverCol is a binary variable which is unity if i ever colonized j （or vice versa）， SameCtry is a binary variable which is unity if i is part of the same country at time t （or vice versa）， is a vector of nuisance coefficients， and ε_ijt represents the omitted other influences on bilateral exports.” Event is a binary variable which is unity if i hosted a sports event at or before time t， and zero otherwise. Other variables’ meanings are the same as the model in the literature above.

Run the regression of each scale level， note the value of each γ. Then run the regression of γ on scale， see the coefficient of γi and its significance.

The data is available since the trade volume between two countries and data of each country’s population， GDP， distance to other countries are easy to gather on countries’ national statistics websites. “Total number of attendance” are released by the reports after the game. Capturing “Total number of online watching people” needs me to first check which TV stations bought the broadcast rights of this competition， then search the ratings on each stations’ website.

4.Estimated Result Innovation

From my point of view， I estimate that scale levels and their coefficients γ have a steady positive relationship， that is， the bigger the scale level， the larger their coefficients γ.

Of course， there are other motivations for hosting sports events which we have not addressed such as the merit of public support. And the volume of trade can be affected by some macroeconomic factors， but the result of the model will still be robust and promising. I estimate that even the non-mega sports events still promote international trade， as long as the country host international sports events， then this behavior shows the country’s willingness of opening， and the volume of trade will possibly expand.

My study will specify each scale level’s sports events’ effects on trade volume. This is an innovation since no one has ever done deep research like this before. Countries may use my study’s conclusion as a reference from one aspect： trade volume and decide whether to compete for the right to host a relatively non-mega sports event.

A brief introduction to the author：

Luo Wenhao （1998-），University of International Business and Economics Grade 2015 Economics （honor） 1501 class ，The research direction is economics， international trade。