Could all those new stadiums actually help Brazil’s economy?

What started as small demonstrations against bus fare increases have turned into massive anti-government demonstrations in at least six of Brazil’s largest cities. The protesters seem to have a wide range of grievances related to persistent poverty and the rising cost of living, but one factor seems to be the massive public investments involved with the country’s plans to hose the World Cup in 2014 and the Olympics in 2016. Simon Romero of the New York Times reports:

One issue surging to the fore involves anger over stadium projects in various cities ahead of the 2014 World Cup, which Brazil is preparing to host. Some projects have been hindered by cost overruns and delays, the unfinished structures standing as testament to an injection of resources into sports arenas at a time when schools and public transit systems need upgrades.

“The largest protests are happening in cities which will host World Cup games,” Mr. Malini said. “Brazilians are mixing soccer and politics in a way that is new, and minority voices are making themselves heard.”

It’s generally taken as a given that hosting major international sporting events like the World Cup or, to an even greater extent, the Olympics, is a massive waste of money. As John Hoberman wrote in a 2008 Think Again for Foreign Policy, The 1976 Montreal Games incurred a $1.5 billion debt that was not paid off until December 2006. The fiasco became known in Canada as "The Big Owe." … A U.S. Government Accountability Office report on the games estimates that Americans paid $75 million to support the L.A. Games. The 2002 Salt Lake City Winter Games cost Americans at least $342 million."

Then of course, there was the $15 billion spent by Greece on the 2004 Olympics — perhaps not the wisest longterm investment in retrospect, with the country bankrupt and most of the facilities lying in ruins today.  

But a recent study by two economists from the China University of Hong Kong takes a more sanguine view. Looking at "126 host and non-host countries of the Olympiad between 1956 and 2012," they attempt to isolate the impact of Olympic-related spending on infrastructure improvements — new transportation systems for instance — and other economic activity, finding that "additional growth brought about by the Olympics during pre-Games period is approximately 1 % [per capita GDP growth]. An additional 2.4 % is found for the year of the Games, while an additional 1.4 % to 1.7 % are found during different years of the post-Games period."

Many economists still dispute the causality on this one. Two years ago for the print magazine, I discussed the work of Andrew K. Rose and Mark Spiegel, who found that hosting the Olympics is correlated with gains in a country’s exports, but that the effect is even more pronounced for countries that are runners-up to host the Olympics. This could indicate that the Olympics don’t boost a country’s exports but that the desire to host the Olympics is a signalling mechanism for countries pursuing overall pro-trade policies. 

Brazil is betting big on global spectacle, hosting the world’s two largest international sporting events. It’s possible that these events may give the country a bit of a shot in the arm, but with economic growth slowing and social unrest growing, the big parties are likely to take some of the blame if the overall situation doesn’t improve.