© Geurts and Kontokosta (2009)
The Impact of the Olympic The Impact of the Olympic Games on Foreign Direct Games on Foreign Direct
Investment in Real EstateInvestment in Real Estate byby
Tom G. GeurtsTom G. Geurts and and
Constantine E. KontokostaConstantine E. Kontokosta New York UniversityNew York University
Schack Institute of Real EstateSchack Institute of Real Estate
ERES 2009 Annual ConferenceERES 2009 Annual ConferenceStockholm, SwedenStockholm, Sweden
26 June 200926 June 2009
© Geurts and Kontokosta (2009)
ContentsContents
Introduction. Methodology. Data. Preliminary Results. Conclusions.
© Geurts and Kontokosta (2009)
IntroductionIntroduction
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?
© Geurts and Kontokosta (2009)
MethodologyMethodology
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.
© Geurts and Kontokosta (2009)
MethodologyMethodology
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
© Geurts and Kontokosta (2009)
MethodologyMethodology 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
EFIit = α + β1*X1 + β2*X2 + β3*OLYt + β4*POSTOLYt + β5*TREND
+ β6*TROLYt + β7*TRPOSTOLYt + εit
© Geurts and Kontokosta (2009)
DataData2000 Summer Olympic Games, Bid Countries v. Control Group
3
4
5
6
7
8
9
1970 1975 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006
YEAR
EF
W In
de
x V
alu
e
Developed Bidders
Developed Control Group
Developing Bidders
Developing Control Group
Bid
Turkey, China
Australia, UK, Germany
Olympic Year
c
+2.05
+1.27
+0.74
+0.43
© Geurts and Kontokosta (2009)
DataData2000 Summer Olympic Games, Host v. Bid Countries
3
4
5
6
7
8
9
1970 1975 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006
YEAR
EF
W In
dex
Val
ue
Australia
Bidders
Turkey
HOST
Bidder Countries
+1.23
+1.12+0.90
Turkey
© Geurts and Kontokosta (2009)
DataData2000 Summer Olympic Games, Bid Countries v. Control Group, FDI Net Inflows
0
10,000,000,000
20,000,000,000
30,000,000,000
40,000,000,000
50,000,000,000
60,000,000,000
70,000,000,000
80,000,000,000
90,000,000,000
100,000,000,000
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
YEAR
FD
I, N
et In
flo
ws,
Cu
rren
t U
S$
Bid Countries
Control Group
+$70M
+$29M
Bid Olympic Year
© Geurts and Kontokosta (2009)
Preliminary ResultsPreliminary 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
© Geurts and Kontokosta (2009)
Preliminary ResultsPreliminary 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
© Geurts and Kontokosta (2009)
ConclusionsConclusions
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.
© Geurts and Kontokosta (2009)
Thank youThank you
Tom GeurtsNew York [email protected]
Constantine KontokostaNew York [email protected]