The Impact of the Olympic Games on Foreign Direct Investment in Real Estate

The Olympic Games are increasingly viewed as a potential catalyst for urban transformation, increased investment, and social, economic, and political change. They are expected to bring tourists, foreign investment, and attention to the host city and nation. However, are these expectations justified? Although there have been numerous attempts to assess the impacts and effects of the Olympic Games on the host city and nation (for example, Preuss 2004 and Kasimati 2003), few have focused on the institutional reforms in the host country that are needed for political, social, and economic integration into global markets. This study tests the hypothesis that the Olympics Games accelerate this integration and induce the political, regulatory, legal, and economic reforms to support increased foreign investment in real estate. If the Olympics bring about institutional change and global market integration, it can be expected that aggregate levels of foreign investment in real estate in the host country will increase, as perceived opportunities and reduced levels of (institutional) risk attract new investors (Geurts and Jaffe 1996). Indeed, the positive effect of hosting an Olympic Game may lead to a reduction of the often observed ìhome-assetî bias. On the other hand, if foreign investment remains below pre-Olympic levels or those of comparable countries, the Games may provide only short-term and/or superficial impacts on institutions and markets. Using a study group of five Olympic Games spanning the past 20 years, this paper applies a modified difference-in-difference model to evaluate the impact of the Olympic Games on the level and growth rate of foreign real estate investment in the host country (Slaughter 2001). For each host, comparable countries are selected using a composite of regulatory indices from the World Bank, the Heritage Foundation, and the Fraser Institute, as well as macroeconomic, demographic, and geographic variables to create a control group for the analysis. This matching technique allows for a more precise estimation of Olympic-related impacts by reducing the potential error of the coefficients due to selection bias and unobserved differences between groups.