It's summer. The summer of an Olympic year. This time, and it's the third time, it's London's turn. Everything is ready (or almost) and, in a few days, around 17.000 athletes from 205 nations will gather in the presence of Queen Elizabeth II to compete in 38 disciplines (find some data here).
What does it has to do with it talk about the Olympics on an economic-financial blog? Well, the fact that the economy benefits, at least temporarily, from the Olympic Games is known. Indeed, economists expect UK GDP to rebound in the third quarter, thanks to this rally.
But let's try to make another reasoning. Can the Games, or rather the victories, also have an economic explanation?
It would seem so. I found an interesting piece of research by the UniCredit Economics, FI/FX & Commodity Research team which, to ease the pain on the financial markets a bit, decided to “modelling” the Olympic results and produce predictions for the London 2012 medal table. The research is very extensive and is based on a long series of papers which I am not quoting, but which I will be happy to indicate to anyone who wants to learn more (send us an email at ilblog@adviseonly.com).
The research starts from a sample of 130 countries (to be able to analyze a statistically significant number of events) and observes the years from 1952 (Helsinki) to 2008 (Beijing).
It's not about understanding which athletes are stronger: in this case the prime determinants of success are mother nature, effort, commitment and unfortunately sometimes the use of unorthodox "supplements". The goal of research is to predict which countries will grab the medals and why.
Taxonomy of the winner: the explanatory variables
In addition to the DNA characteristics of the inhabitants of a country, there are also social, financial and economic factors at the basis of success in the Summer Games. The most important variables identified by the Unicredit team are many.
- The size of the population: the probability of having more talent in a country is higher if the number of people is higher, but there are exceptions; for the poorest countries the relationship between Olympic medals and population is decidedly weak.
- Financial resources, or rather the Pro-capite GDP or government spending dedicated to sport: medical care, state-of-the-art sports facilities, funds for training, for the maintenance of athletes and their entourage, etc... are very important for "cultivating and making the talents grow" in a nation; the poorest countries, although much more populous and therefore potentially richer in gifted athletes, often cannot afford to maintain the infrastructures to select and nurture probable future Olympic gold medals, tending to devote themselves to a limited number of disciplines and , among the many, choose the least expensive ones1
- "playstation" effect: a progressively decreasing link is noted beyond certain income levels; young people from richer countries are distracted by home activities that are less tiring than physical exercise.
- Host country advantage “home bias”: if on the one hand the psychological pressure should weigh more on the athletes who "play at home", on the other hand the enthusiasm and greater support of the fans is a statistically very important factor in the ex post explanation of the awarding of the medals.
- Centrally planned market economies: the former bulwarks of Communism have collected a large number of medals in the history of past Olympics; without making the poor bearded athletes of former East Germany go to mind, the idea underlying the explanatory capacity of this variable is that a sporting success in front of the world increases international prestige and consolidates citizens' trust in the central government, ensuring that the investments allocated to sport in these countries have always been very high.
- Persistence: Olympic successes are not meteorological, often a nation that produces many elite athletes in one edition of the Games remains at the top of the rankings also in the next one; on the one hand it is obvious that a young athlete has top-level performances for a period that covers at least two editions, then many young people are fascinated by success in the Olympic disciplines and become passionate, thus expanding the pool of potential talents, and finally investments in sports have a long tail, that is, they produce results in the medium term.
The model and the results
The Unicredit model considers 6 variables to regress and explain the share of Olympic medals attributed to a country, and estimates the equation on the sample cited. The variables, as explained above are: population, GDP per capita, share of medals in previous editions, host country / next host country, controlled economy.
The regression results show how a 1% increase in population or GDP contributes to a 0,3% and 0,4% medal share increase, respectively, with a very high significance. Being a host country, or having won a large number of medals in the past has a large explanatory power of the share of medals won.
London 2012
Therefore, based on the latest data available by population, it appears that the distribution of the medals will not be too dissimilar to the results in Beijing 2008, with China still expected to rank second behind the United States. The increase in the medal table for Great Britain is interesting which, above all thanks to its status as host country, could earn 21 more medals than in the previous edition.; finally Brazil which, thanks to the macroeconomic situation and the fact that it will be the next country to host the Games, sees itself awarded by the model as many as 28 more medals.
Well what can I say, we meet to verify the predictive power of the model but in the meantime let's enjoy the summer and the Games..... but as always Go Azzurri!!!
