The Olympic Effect

Why should countries offer to host costly 'mega-events' such as the Olympic Games? We show that hosting a mega-event increases exports. This effect is statistically robust, permanent and large; trade is over 20% higher for host countries. Interestingly, unsuccessful bids to host the Olympics have a similar impact on exports. We conclude that the Olympic effect on trade is attributable to the signal a country sends when bidding to host the games, rather than the act of actually holding a mega-event. We develop an appropriate formal model and derive conditions under which liberalising countries will signal through a mega-event bid.