Organizing Mega-Sporting Events and Its Influence on Inward FDI
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Organizing mega-sporting events and its influence on inward FDI Author: Romano Bersma, 6179274 Date of submission: 29-01-2016 Qualification: MSc. In Business Administration-International Management Track Institution: University of Amsterdam (UvA) Supervisor: Erik Dirksen Statement of originality This document is written by Romano Bersma who declares to take full responsibility for the contents of this document. I declare that the text and the work presented in this document is original and that no sources other than those mentioned in the text and its references have been used in creating it. The Faculty of Economics and Business is responsible solely for the supervision of completion of the work, not for the contents. Table of contents Abstract .................................................................................................... 3 1 Introduction ......................................................................................... 3 2 Theory ................................................................................................ 7 2.1 Foreign Direct Investment ................................................................ 7 2.2 FDI and the multinational enterprise .................................................. 8 2.3 Drivers for Foreign Direct Investment ................................................ 9 2.4 The importance of FDI ................................................................... 11 2.5 Mega-sporting events .................................................................... 12 2.6 Mega-sporting events and its potential influence on economic activity . 13 3. Research question and hypotheses ....................................................... 15 3.1 Research Method........................................................................... 17 4. Discussion ....................................................................................... 24 5. Conclusion ...................................................................................... 26 6. Limitations and recommendations for future research ........................... 26 7. Bibliography ....................................................................................... 28 Appendix .............................................................................................. 30 2 Abstract In this paper the link between hosting a major-sporting event and foreign direct investment (FDI) is discussed. Using investment data from UNCTAD a GEE- approach has been used, and the results show that there might be a link between hosting a mega-sporting event and the level of inward FDI. The mega- sporting events taken into account are the FIFA World Championships, the UEFA European Championships, the summer Olympics, and the winter Olympics. In order to gain more insight onto the differences between these events hypotheses were tested. The results show that there seems to be a higher number of inward FDI when hosting the FIFA World Championships than hosting the UEFA European Championships. The hosting of the summer Olympics or the winter Olympics seem to have the same influence on inward FDI. Finally the hosting of a football event seems to have more influence on inward FDI than the hosting of an Olympic event. Keywords: FDI, mega-sporting events. 1 Introduction Only a few months ago the Dutch Olympic committee (NOC) decided to give the right to organize the European Games back to the European Olympic committee. According to the NOC there are too much uncertainties, and most importantly there is little consensus about who will be responsible for potential financial losses. Although the origin of the European Games is quite new (the first European Games were held in the early summer of 2015 in Azerbaijan) the decision of the NOC is not in line with the current trend regarding the willingness from cities to host a mega-sporting event. According to Baade & Matheson (2004) countries compete with each other to earn the right to organize a mega- 3 sporting event in order to profit from a so-called economic windfall. Positive economic effects from organizing a mega-sporting event are for example: a significantly larger pool of tourists visiting the city or region where such an event is held, and an increase in (temporary) jobs. However, economic disadvantages may occur as well for instance due to the costs of improving the infrastructure, and the building of new stadiums. The aforementioned competition between cities or regions for the right to host a mega-sporting event may be linked to the concept of place-competition. According to Dunn and McGuirk (1999) place- competition is a competition between cities or regions on the level of the best place to invest. Cities or regions try to attract foreign direct investment (FDI) through place-marketing which logically means that these cities or regions attempt to make their ‘place’ most attractive. To put it differently these localities attempt to make the investment environment of a city or region more attractive. The investment environment consists of physical, institutional, and symbolic conditions. An example of making the symbolic condition of a city or region more attractive may be by hosting a mega-sporting event. Whether there is an actual relationship between hosting a mega-sporting event and more FDI is unknown. An attempt will be made within this paper to answer the question if there is a link between hosting a mega-sporting event and FDI. So the research question is: What is the influence of hosting a major-sporting event on the level of inward FDI in the host country? Answering this question may be academically relevant, because most attention within the scientific literature regarding mega-sporting events is directed to the question if it is justifiable to use public money to host a mega-sporting event. The results of this study may be used by proponents of hosting mega-sporting 4 events with the argument that these events may induce more FDI. Opponents may use the results of this study as well in case the results of this study will show that the hosting of mega-sporting events will not lead to more FDI. This statement also aids in explaining why this study may be of practical relevance. The results of this study may be used by politicians or other parties who wish to strengthen their arguments both for parties that are in favor as well as for parties that are against hosting a mega-sporting event by the city or region they are related to. In addition to the potential relevance for parties strengthening their arguments in favor or against mega-sporting events this paper may contribute to the intertwined relationship of MNEs and FDI. According to Blonigen (2004) one of the main questions within the academic field of FDI research remains why firms would choose to service a foreign market using direct investments. This paper might show that mega-sporting events could be a driver for firms to invest abroad. Data will be obtained through sources from the United Nations, and more specifically from their statistics website where one may download statistics data regarding FDI flows. Important to note that in this paper only gross FDI data will be used (inward FDI data), because in order to find an answer to the research question and in order to test the proposed hypotheses net FDI data is not relevant. The mega-sporting events taken into account within this paper will be the summer and winter Olympics, the FIFA World Championships, and the UEFA European Championships held between 1993 and 2010. Because the mega-sporting events just mentioned are not equal in size, and not equal in exposure different outcomes may be expected for these events individually. Therefore hypotheses will be tested which try to shed some light onto the differences between these events, this will be made more clear in the research method section. The structure of the paper will now be enlightened. In 5 the following chapter of this paper a literature overview will be given on the topic of FDI and mega-sporting events. Then the research method will be explained, and the hypotheses will be presented. After that the results will be given, and the findings of the statistical analysis will be discussed. Then the conclusion and limitations of this study will be presented. Finally suggestions for further research will be given. 6 2 Theory Within this chapter relevant theories will be discussed on the topic of FDI and mega-sporting events. At first theory regarding FDI and MNEs will be discussed and why firms would engage in FDI. Then theory regarding mega-sporting events will be discussed, and which events will be used within this paper. 2.1 Foreign Direct Investment One of the first scholars to mention Foreign Direct Investment (FDI) was Stephen Hymer. One of his main contributions to the academic field of International Business theory is the distinction between portfolio investment and FDI. The main difference between these two investments is that portfolio investments are investments made in other countries which are merely financial i.e. may be conducted in order to gain from different interest rates between different countries. FDI on the other hand also gives some control over the business activities where such a firm invested in (Hymer, 1960). These direct investments where a firm gains some control over overseas business activities are mainly done by multinational enterprises (MNEs). Since the data that will be used within this paper is derived from the statistics database from the UN it may be useful