The Leontief Matrix, the Keynesian Cross, and Economic Insensibility of Hosting the Olympics: A Survey of the Korean Experience

Abstract

Korea will have hosted 13 international mega-events by 2018. The rationale for attracting an event to Korea is often its economic impact, namely, induced production, income, and employment effects. These effects are estimated by one of the state-run research institutes using the Leontief input-output model. One big problem with such a practice is that the model is inapplicable to the national decision whether to host a mega-event. As a consequence of misconducted feasibility studies, national resources might have been inefficiently allocated over decades. The Keynesian cross is not applicable, either. Instead of the two popular models, a holistic cost-benefit analysis should be conducted for a national project. This paper reviews a total of 17 feasibility studies for the 13 mega-events, explains their methodological and practical errors, and suggests the right approach.

Keywords: sports mega-event, Olympics, economic impacts, Leontief input-output table

JEL Classification: C67, E65, H54