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

1. The Impact of the Olympic Games on Foreign Direct Investment in Real Estate by Tom G. Geurts and Constantine E. Kontokosta New York University Schack Institute of Real Estate ERES 2009 Annual Conference Stockholm, Sweden 26 June 2009

2. Contents • Introduction. • Methodology. • Data. • Preliminary Results. • Conclusions.

3. Introduction • The Institutional Framework (= IF) is critical for international Real Estate investors. • Geurts and Jaffe (1996) identified variables that are especially important. • FDI = ƒ(Improvement in IF) • Is bidding for an Olympics a signal?

4. Methodology • Compare countries that bid for (host) the Olympics with countries with similar ranking in terms of Institutional Framework. • Compare changes in IF pre/post announcement (event). • Hypothesis: Countries that bid (and host) see greater improvement.

5. Methodology • Quasi-experimental research design using adjusted interrupted time series approach • Propensity score matching technique with 1-to-n caliper selection • Time series cross sectional data • Estimating using OLS with panel corrected standard errors (Beck and Katz 1995, Beck 2001) • Panel heteroskedasticity • Contemporaneous correlation of errors across panels • Prais-Winsten estimation to correct for serial correlation

6. Methodology • Propensity Score Matching Technique: E(y|T = 1) - E(y|T = 0) = β + [E(ε|T = 1) - E(ε|T = 0)] P(Xi) = Pr(Ti = 1 | Xi) • Impact Model Specification: • Dependent variables • Economic Freedom of the World Index Value (Fraser Institute, Cato Institute) – 0 to 10 index value system • Foreign Direct Investment (Net Inflows, % of GDP) – World Bank, IMF • Coefficients of interest • Absolute (time invariant) impact – POSTOLY • Time trend (rate of change) impact – TRPOSTOLY

7. Data

8. Data

9. Data

10. Preliminary Results • 2000 Summer Olympic Games (N = 925, R2 = 0.79) • POSTOLY: β = 0.153 (t=1.13) • TRPOSTOLY: β = 0.011 (t=2.16) • Significant at the 95% confidence level • No additional impact for host country • FDI: annual change in FDI 0.04% greater (as % of GDP) • 1992 Summer Olympic Games (N = 370, R2 = 0.60) • POSTOLY: β = 0.331 (t=1.94) • TRPOSTOLY: β = 0.003 (t=0.75) • Spain (host) = FDI annual rate of change increased 0.02% • Positive correlation between FDI and IF (0 to 10 scale) • 1 point increase in IF = 1.08% increase in FDI as % of GDP

11. Preliminary Results • Bidding for the Olympics is a positive indicator of shifting IF over time • Hosting the Olympics correlates with positive improvement in IF • FDI increases with bidding and hosting the Olympics • Marginal effect dependent on level of development/IF of bid/host country • Greater benefit for less developed countries

12. Conclusions • International Real Estate investors are always looking for indicators for promising risk-adjusted returns. • An improved Institutional Framework will lead to improving returns and lower risk. • Countries that bid for (host) an Olympics will see such an improved Institutional Framework.

13. Thank you Tom Geurts New York University tom.geurts@nyu.edu Constantine Kontokosta New York University ckontokosta@nyu.edu