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The Economic Impact of 2015 European Games Held in Baku
Qafqaz University
Research Topic: The Economic Impact of 2015 European
Games Held in Baku
Student: Aslan Aslanbayli
Student number: 130214016
Baku 2016
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The Economic Impact of 2015 European Games Held in Baku
Introduction
Holding the international games in a country usually implies development of the sport
profile of the country. One significant factor that is more impacted is the economy of host
country.
To illustrate impact of international games on country’s economy all macroeconomic
variables are regarded as impacted factors as well as related factors (Bohlman and Van
Heerden, 2005). Taking into account tourism of a host country it is particularly significant
factor for the economic development. The level of tourists in a specific country might be
doubled while mega-events take part. Particularly, small populated cities where average stay
is two nights (i.e. in some small populated cities, tourists are not willing to stay or spend time
unless any attractive or globalized event (competitions, contests, etc.) is held) by organizing
this type of events can rise these nights by giving additional couple of days (Narmin, 2015)
To scrutinize first European Games held in Baku in 2015, we need to bring an explanation
of definition of “mega-event”. “Baku European games” was recognized as mega-event
around world. Mega-event is a large scale, internationally sponsored, public entrepreneurship
activity engaging in a long-term multi sector organization within the host city and nation with
the double goal of supporting overall local and regional development and advancing universal
values and principles to meet global challenges (Bowdin et al., 2006).
Azerbaijan was given right to host first European Games at the 41st EOC General
Assembly in Rome, on December 8, 2012. Games started June 12, 2015 continued till June
28, 2015. In contest 6000 athletes from 50 countries competed in the capital of Azerbaijan,
Baku (“Participants” Baku2015, 2015).
The methodology of this paper is based on quantitative research on the impact of European
Games in Azerbaijan economy. Paper seeks to discuss economic impact of the “Games” and
to what extent this mega-event has an impact on different macroeconomic variables,
especially on GDP. The research paper uses secondary data sources that have been collected
through World Bank, World Travel& Tourism Council, The State Statistical Committee of
Republic of Azerbaijan, Trading Economics, and other valid sites.
To answer research question thesis consists of significant part of analysis. The paper
involves model and data in order to apply central research question. To illustrate impact of
event, we formulated regression model. Data used in this paper includes time period between
2000-2015 years.
Literature Review
As noted in introduction part Baku European Games was staged for the first time in
history. For that reason we launched some related literatures to European Games.
Taking into account commercialization of sport, today all mega-events are preeminent part
of economy. In all shown articles in bibliography, economy of host country undergoes
economic development in different phases or debt factor is observed.
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The Economic Impact of 2015 European Games Held in Baku
After Los Angeles Olympic Games, financial investment in “Games” has been increasing
nonstop (Malfas, Theodoraki and Houlihan, 2003). For instance, television broadcasting
rights in 1996 Atlanta Olympic Games cost US $872 million, for Sydney Olympic Games US
$1,12 billion, and in Athens 2004 that contribution amounted to approximately US $1,7
billion (Malfas, Theodoraki and Houlihan, 2003)
Except media and television rights, mega-events are the main factor that exerts an impact
on tourism and economy of host country or region (Hall, 1992). Economy in the country
where the mega-events are staged is impacted by the contribution of expenditures on different
areas: facility and infrastructure preparation, revenue from visitor spending, revenue gained
through tickets and gate receipts, transportation, hospitality, etc. (Malfas, Theodoraki and
Houlihan, 2003). Additionally, Olympic Games can be viewed as one main indicator that
accumulates capital through corporate sponsorships and media audiences (Whitson, 1996).
By the way, Roche has claimed that the degree of media interest in an event will effectively
determine the sort of event, meant that importance of event regionally or locally depends on
coverage of media during those kinds of events (Malfas, Theodoraki and Houlihan, 2003).
For example, 1991 World Student Games held in Sheffield did not get a good and reasonable
media coverage, and in the end resulted with great amount of debt for organizers and
economy of host country (Roche, 1994)
In the phase of common sense of the impact of the mega-events such as Baku European
Games on the economy of the country was fully estimated by some studies. For example,
2003 Australia Rugby World Cup examined by URS Finance and Economics (2004) made a
contribution of AU $494 million in additional industry sales, AU $55 million revenue to
Common wealth Government and established more than 4000 full and part-time jobs during
games. As a result, total generation by RWC in 2003 amounted to AU $289 million of GDP
of Australia (Bohlman and Van Heerden, 2005).
Another study based on impact of 2010 Football World Cup on Southern Africa economy.
The study examined that contribution made by the World Cup amounted to R10 billion in
GDP of country, and additionally 159000 job places were created (Bohlman and Van
Heerden, 2005). Long-term benefit of 2010 World Cup for Southern Africa was counted in
terms of newly built venues, upgraded transportation system, construction of
accommodations, etc. This will also make a chance for country to be able to hold such
international competitions for the second and more times.
Model and Data
In order to illustrate economic contribution of mega-events, we modelled equation that
contains some macroeconomic variables. To take into account 2015 European Games that
took part in Baku, Azerbaijan, we specified regression on the way of correlation between
GDP and some other related and influential factors. Regression model clarifies economic
impact of mega events on GDP as follows:
gdp=β˳+β1*inf +β2*empl +β3*gs+β4*trvl_trsm +u
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The Economic Impact of 2015 European Games Held in Baku
Here, “gdp” indicates dependent variable gross domestic product (Azerbaijan), “inf” is
inflation rate, “empl” specifies employed population (with number), and “gs” indicates
government spending, whereas contribution of travel and tourism is denoted by “trvl_trsm”
in the model.
To scrutinize macroeconomic variables shown in the regression model, we explain in a
given row, why they have been involved in the equation.
GDP of Azerbaijan in our sample encompasses time period between 2000-2015 years, and
given amounts represented by US dollar (amount of GDP for years is exchanged into USD
with current prices). GDP is normally illustrated by expenditures, but in this regression model
we took into consideration main factors that can be affected by mega-events. As independent
factor, inflation rate also covers the period of 2000-2015, it is fact that during holding of
mega-events, such as Olympic Games, World Cup , and other international, regional events,
prices fluctuate more likely to upside. Employed population is a main and inevitable factor
that discloses GDP position of a country. As noted in theoretical part, in countries where
global events are held, employment rate shifts up, for new accommodations, constructions,
facilities, etc. are built in relation with holding of those events. Also in another phase,
administration of such events requires white collar employees.
Third independent variable is denoted by government spending. In reality in economy
government spending absorbs huge amount of GDP, and in some countries exceeds tax
revenue, so results with deficit. In organization of mega-events, government expenditure
increases by the amount generated from construction of facilities.
Last included factor is contribution of travel and tourism on GDP of Azerbaijan. On this
stage, we combined total of direct, indirect, and induced contribution of tourism in our data.
Reason why we involved travel and tourism factor in our regression model is to investigate
real matter of tourism in Azerbaijani economy whether GDP is impacted by contribution of
tourism.
Empirical Results
Table below shows regression results for the impacts of 2015 European Games on
economy of Azerbaijan. Here, we set two contrary hypotheses.
H0: If β1=0 and, GDP is not influenced respectively by inflation,
β2=0 and, GDP is not influenced respectively by employment,
β3 =0 and, GDP is not influenced respectively by government spending,
β4=0, GDP is not influenced respectively by travel and tourism.
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The Economic Impact of 2015 European Games Held in Baku
H1: If β1≠0 or, GDP is influenced respectively by inflation,
β2≠0 or, GDP is influenced respectively by employment,
β3 ≠0 or, GDP is influenced respectively by government spending,
β4≠0, GDP is influenced respectively by travel and tourism.
Reviewing table we can conclude that inflation and government spending have positive
significant effect on GDP, so here null hypothesis, H0 can be rejected, and we can accept H1,
alternative hypothesis, whilst employment and contribution of tourism and travel are
statistically insignificant, and employment has negative insignificant effect on GDP, but
contribution of travel and tourism has positive insignificant effect on GDP of Azerbaijan, in
this case here we fail to reject null hypothesis, H0, and do not accept H1, alternative
hypothesis.
Looking up coefficients, could estimate that a million USD change in government
spending would impact on GDP amount by 2.967700 times. Additionally, taking R-squared
from econometric analysis into account displays that independent variables explain regression
model approximately by 99.6%
Table 1: Regression results for impacts of European Games on Azerbaijan economy.
Probability *significant at 0.05 (5%)
Conclusion
In this paper we investigated the impact of 2015 European Games on Azerbaijani
economy. Our empirical results indicate that generally Azerbaijani economy is positively and
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The Economic Impact of 2015 European Games Held in Baku
significantly affected by inflation rate and government spending. It can be interpreted by the
knowledge of that government spending is great percentage of expenditure in the economy,
and inflation is an indicator that can shift up and down the level of GDP in nominal matter.
But from regression analysis we can sum up that the contribution of tourism and employment
level do not significantly impact on Azerbaijani economy, as well as GDP. Taking a look on
these results statistically, on econometric result table above it is obviously seen that a point
change in inflation rate would significantly impact on GDP amount by nearly 56188 times, or
a million USD change in government spending would significantly impact on GDP amount
by 2.967700 times.
Bibliography
Bohlmann, H.R., Van Heerden, J.H “The Impact of Hosting a Major Sport Event on the
South African Economy” pp-3
Ferran, B “An Economic Analysis of the Barcelona ’92 Olympic Games: Resources,
Financing, and Impact”. Barcelona (1995)
Holger, P “Economic Dimension of the Olympic Games”. Barcelona (2002)
Malfas, M., Theodoraki, E., Houlihan, B “Impacts of the Olympic Games as Mega-events”.
London (2003)
Narmin, N “Analysis of Impact of Baku European Olympic Games on Tourism Development
in Azerbaijan”
http://www.tradingeconomics.com/azerbaijan/
World Bank, http://www.data.worldbank.org/azerbaijan/
World Travel& Tourism Council, “Economic Impact 2015 Azerbaijan” (2015)
The State Statistical Committee of Republic of Azerbaijan, http://www.azstat.org/
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The Economic Impact of 2015 European Games Held in Baku
Appendix
Table 2: Macroeconomic variables (with million USD) used in analysis (period
encompasses from 2000 till 2015)
Source: World Bank, The State Statistical Committee of Azerbaijan, World Travel&
Tourism Council
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