Economic Modelling 30 (2013) 235244

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Economic Modelling
journal homepage: www.elsevier.com/locate/ecmod

Modelling the economic impact of sports events: The case of the

Beijing Olympics
ShiNa Li a,, Adam Blake b, 1, Rhodri Thomas a, 2
a
b

International Centre for Research in Events, Tourism and Hospitality (ICRETH), Leeds Metropolitan University, UK
School of Tourism, Bournemouth University, UK

a r t i c l e

i n f o

Article history:
Accepted 9 September 2012
JEL classication:
L83
C68
Keywords:
Economic impacts
Tourism impacts
The Beijing Olympics
Computable general equilibrium modelling
imperfect competition

a b s t r a c t
Major sports events are used increasingly by policy-makers to stimulate economic development. This has
resulted in a growth of academic interest in ways of analysing their contribution. Following a review of the
literature on the contrasting approaches that have been used, this paper assesses the economic impact of
the Beijing Olympics, in particular the tourism impact, using computable general equilibrium (CGE) modelling. To add novelty, it analyses the data under conditions of imperfect competition, an approach that has
been used to good effect in other contexts, notably international trade. The ndings suggest that staging
the Beijing Olympics brought economic benets to the host economy but that the scale of the impact was
not signicant compared to the total size of the economy. The welfare impacts of the Beijing Olympics
under imperfect competition are shown to be higher than when perfect competition is assumed. This is
explained by the pro-competitive effect.
2012 Elsevier B.V. All rights reserved.

1. Introduction
Sports governing bodies, such as the International Olympic Committee
(IOC) and the Fdration Internationale de Football Association (FIFA),
have started to allocate their championships, in part, on the basis of
their potential for promoting economic development in particular contexts (Clark, 2008). In recent years, this has resulted in several major
sports events being held in developing countries; the 2008 Olympic
games in Beijing, the 2010 FIFA World Cup in South Africa, the 2014
FIFA World Cup and the 2016 Olympic games to be held in Brazil are all
contemporary examples. Governments eager to host these events justify
their actions on the basis that gross domestic product (GDP) will increase
and, as a consequence, their populations will eventually be better off
(Dwyer et al., 2004). The efcacy of such claims is unclear and can only
be judged following rigorous empirical assessment, probably on a caseby-case basis.
Various methods have been applied to assessing the economic effects of large sports events. These include inputoutput (IO) modelling
(see Humphreys and Plummer, 1995; Jang et al., 1999), computable
general equilibrium (CGE) modelling (see Blake, 2005; Bohlmann and
Van Heerden, 2005; Giesecke and Madden, 2007; Li and Blake, 2008;
Corresponding author at: 226 Bront Building, Headingley Campus, Leeds Metropolitan University, Leeds LS6 3QW, UK. Tel.: +44 1138123483; fax: +44 1138121111.
E-mail addresses: S.Li@leedsmet.ac.uk (S. Li), ablake@bournemouth.ac.uk (A. Blake),
r.thomas@leedsmet.ac.uk (R. Thomas).
1
Mailing address: Fern Barrow, Talbot Campus, Bournemouth University, Poole,
Dorset, BH12 5BB, UK.
2
Mailing address: 214 Bront Building, Headingley Campus, Leeds Metropolitan
University, Leeds LS6 3QW, UK.
0264-9993/$ see front matter 2012 Elsevier B.V. All rights reserved.
http://dx.doi.org/10.1016/j.econmod.2012.09.013

Li et al., 2011; Madden, 2002, 2006; New South Wales Treasury, 1997)
and econometric modelling (see Baade et al., 2008; Hotchkiss, et al.,
2003; Kasimati and Dawson, 2009). Although IO modelling was the
most commonly used method in event impact analysis, it has fallen
out of favour because of the limitations of the assumptions used
(Dwyer et al., 2000). CGE modelling makes more realistic assumptions,
which helps explain why it is now considered a more appropriate approach than the IO modelling to assessing the economic impact of
events (Dwyer et al., 2004). Macro-econometric modelling is less complex and requires fewer data than CGE modelling but fails to capture the
interrelationships of different industries in an economy (Russo, 2009).
Perhaps not surprisingly, CGE modelling is gaining currency as a powerful means of assessing the economic effects of hosting major events but
its application to date remains very limited.
Previous studies of the economic impact of sports events using CGE
modelling have all applied the assumption of the perfectly competitive
markets. As this is an idealised market structure, it may be useful analytically but is ultimately unrealistic. The economic impacts of events estimated using perfectly competitive market assumptions can, therefore,
only be valid in the context of an ideal economy and may differ signicantly from the real economy. Most markets are imperfectly competitive,
in particular service industries which have a variety of products, high
markup and restrictions to entry (Blake et al., 2006). Most industries affected by the staging of large sports events are services related to tourism
such as restaurants, hotels, media, communication and entertainment. It
seems appropriate, therefore, to assume imperfect competition when
evaluating the economic effects of sports events. CGE modelling with imperfect competition has been widely used in the eld of international
trade, such as trade policy analysis, trade integration and liberalisation,

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S. Li et al. / Economic Modelling 30 (2013) 235244

agricultural trade modelling, antidumping duties, but not in the context

of this kind of study. Indeed, this paper is the rst to assess the economic
impact of a major sports event using CGE modelling under conditions of
an imperfect market structure, which is designed to provide more rigorous results. This paper adds to the literature by incorporating imperfect
competition into the standard CGE models and assessing the economic
welfare effects of events. By evaluating the tourism impacts of the Beijing
Olympics, the paper also adds weight to the relatively sparse literature
on this topic.
This study will focus mainly on the contribution of increased tourism expenditure. The economic effects of sports events are generated
by different types of event-related investment and expenditure, such
as monies spent on operations, increased tourism expenditure, investment in event venues and related infrastructure, and exports
and foreign investment legacies after the event nishes. Additional
tourism expenditure brought by holding a major event is considered
as one of the most signicant contributors to the total effects of a
sports event (Blake, 2005). The Olympics, as one of the largest of
this genre, can bring positive tourism impacts to host economies
(Kasimati and Dawson, 2009; Madden, 2002, 2006; New South
Wales Treasury, 1997). There has been wide recognition of the highly
desirable economic impacts that major events can generate in
attracting visitors to a region to participate or observe a sports
event. Tourists' awareness of a host city can be enhanced when the
wide media coverage of an event changes a negative image to positive
or enhances a positive image of the host country and its city (Hall,
1989). McManus (1999) pointed out that a perceived positive image
of a host city can encourage both international and national tourists
to visit the city. When more tourists arrive at the host city and
spend more money on hotels, accommodation, transport and other
services, the new money will ow into the host city and generate
economic impact at both the macroeconomic and industry levels.
When calculating the economic impact of the Beijing Olympics for
this paper, the focus will be on the host city, Beijing, rather than the
host country, China. This is appropriate because of the size and
growth rate of the Chinese economy. It is conceivable that the impact
of the Beijing Olympics could be highly signicant at the level of the
city but insignicant at the level of the economy as a whole (Dwyer
et al., 2006). Although this research is conducted after the Beijing
Olympics, it runs ex-ante simulations as there are insufcient data
available for a full ex-post assessment. As is discussed later, to undertake a rigorous ex-post analysis of long-term impacts requires data
that are unavailable.
The remainder of the paper is structured as follows. In Section 2,
CGE models are introduced. This is followed by an explanation of
how imperfect competition has been incorporated into CGE modelling and the introduction of tourism impacts in the model, which
can be applied to examining the impacts of any large sports events.
The third section describes the specic model developed to evaluate
the economic impacts of the Beijing 2008 Olympics. Section 4 reports
the ndings of the study and conclusions are drawn in Section 5.
2. The model
2.1. CGE models with imperfect competition
A perfectly competitive market is usually characterised as a market
with innite buyers and sellers trading homogeneous products and entering or exiting the market freely. Imperfect competition includes
three main types: monopoly, oligopoly and monopolistic competition.
The majority of studies using CGE modelling with imperfect competition can be found in the international trade eld. Some have used conjectural variation models by incorporating oligopoly (see Daughety,
1985; Dixit, 1987; Hoffmann, 2002; Pfaffermayr, 1999). Others have
employed monopolistic models (Harrison et al., 1997; Neary, 2000;
Swaminathan and Hertel, 1997). There are different models of

monopolistic competition. For example, the DixitStiglitz (DS) model

introduced product diversity and scale economies into the market equilibrium (Dixit and Stiglitz, 1977); SpenceDixitStiglitz preferences
use different variants (Spence, 1976). Lancaster (1979) assumed that
consumers prefer different variety of goods, which means that variety
rather than quantity could increase their utilities. DS is more feasible
(Neary, 2000) which has been developed and widely applied to international trade (Harris, 1984; Harrison et al., 1995). Harris (1984) assumed
internal scale economies at the individual rm level. His model was
built under two conditions: prot maximisation when marginal cost
equals marginal price, and free entry until price equals average cost.
Harrison et al. (1995) built an increasing returns to scale model by assuming product differentiation at the rm level, constant marginal
costs and given xed costs for rms.
Studies that have employed CGE modelling with imperfect competition have applied anti-competitive and pro-competitive effects
to discuss the ndings (see Bye, et al., 2009; Conway and Dhar,
1991; Dee and Hanslow, 2001; Devarajan and Rodrik, 1991; Hsu,
2008; Konan and Assche, 2004; Sheldon, 1996). Pro-competition effects occur when new entrants to the market drive down levels of
mark-up on marginal costs leading to an increase in efciency. This
is in contrast to anti-competition where decreases in the level of competition cause welfare loss to the economy (Marrewijk, 2007; Walker,
2006). One of the important characteristics of monopolistically competitive markets is that rms can enter and exit the market freely.
The change in number of rms leads to the change in the mark-up.
If demand increases, then more rms will enter the market which increases the number of rms and decreases the mark-up they apply.
This implies that the level of competition increases, which in turn
precipitates increasing efciency. On the contrary, when demand decreases, more rms will exit the market, which reduces the number of
rms and increases the markup. The decrease in the level of competition causes a decrease in efciency. The effects brought by the
Olympic Games in the presence of imperfect competition, therefore,
depend on the pattern of demand changes that occur, as demand
will increase in some industries and fall in others. If, for example, demand increases mainly in industries that are highly concentrated and
falls in industries that are already highly competitive, the overall effect would be that of pro-competitive changes but anti-competitive
changes would result if the opposite was true.

2.2. Incorporating imperfect competition to the model

This section will explain how imperfect competition has been incorporated into the standard CGE models for assessing the economic
effects of a sports event and an approach to modelling tourism impacts. To start with, a standard static model with perfect competition
is built. 3 This standard model is adapted from Lofgren et al.'s (2002)
model. 4 The main technologies applied to the model are the Leontief,
the CobbDouglas (CD), the constant elasticity of substitution (CES)
and the constant elasticity of transformation (CET) technology. The
software employed to build the CGE models is the General Algebraic
Modelling System (GAMS) with a subsystem of GAMS, called Mathematical Programming System for General Equilibrium Analysis
(MPSGE), which is applied in this research.

3
The estimation of the economic impacts of large sporting events normally covers a
long run period, including pre-, during and post-event stages and so one approach
might be to employ a dynamic model. However, the purpose of this paper was to explore the inuence of imperfect competition on the estimation, and there was a danger
of diverting the focus to a discussion of dynamics. Therefore, in this paper we incorporate imperfect competition to a static model and leave the dynamic issue to further
research.
4
See Lofgren et al. (2002) for detailed discussion of the structure of this standard
model.

S. Li et al. / Economic Modelling 30 (2013) 235244

It is assumed that rms compete in a DixitStiglitz type of imperfectly competitive setting (as in Harris, 1984; Harrison et al., 1997). In
the DixitStiglitz setting of perfect competition model, all rms in the
same industry produce exactly the same products. To model the feature of heterogeneous goods in an imperfectly competitive market, it
is assumed that each rm produces one variety of one type of good,
which is different from other varieties supplied by other rms in
the same industry. For example, tour operators supply tour packages
and each package can be seen as one variety, which is not exactly the
same as another tour package (or another variety) in terms of different destinations, or hotels or transport and so on. In this case, each
tour package can be seen as a variety of the product. In the model, it
is assumed that each rm only produces one variety. Internal economic scale at the rm level is formed due to the product diversity,
but constant returns to scale is assumed at the industry level.
Mark-up can be obtained from both domestic and exported goods. A
dummy sector named entrepreneur is specied in the model. This
new sector collects mark-ups and pays for xed costs. It is assumed
that free entry and exit are allowed which means that the number
of rms in each industry is endogenous.
A key challenge in introducing imperfect competition into CGE
models is the way to model mark-up, which is the difference between
the market price and the marginal cost. There are different ways to introduce mark-up into the standard model with perfect competition.
In the model built for this paper, the mark-up is regarded as endowment of the representative entrepreneur, who demands xed costs. In
other words, the mark-up is used to pay xed costs. Two types of
mark-ups are identied: the mark-up of domestic goods and the
markup of exported goods. The number of rms in the market determines the level of the mark-up the more rms competing in the
market, the less the total mark-up, and vice versa. The share of production of each rm is assumed to be the same.
The general mark-up rate formula is 5:
1 1
1



Mark
uprate 1
N

is the number of rms

is the price elasticity of demand for the output
is the elasticity of substitution between inputs
is conjectural variation, an arbitrary conjecture about
how rm 2 responds to rm 1's choice of output (Varian,
1992: 302). It is assumed to be zero in the model, which indicates that each rm does not expect that other rms will
respond to its choice of output.

2.3. Incorporating tourism impacts to the model

Existing studies, such as Wattanakuljarus and Coxhead (2008) and
Li et al. (2011), have explained the incorporation of tourism into CGE
modelling.6 The same approach is applied in this research to modelling tourism impacts. Increased tourism expenditure (or increased
tourism demand) is considered a tourism demand shock in the
model. International tourism expenditure is modelled as tourism exports to international tourists arriving at an event host destination.
Demand for exported tourism products is a downward sloping function of price for exported tourism products. Eq. (2) is the foreign tourism demand equation (ftde) which is determined by shift parameter

For details of how this formula is induced, please see Blake et al. (1999).
For details of introducing tourism to CGE models, please see Wattanakuljarus and
Coxhead (2008) and Li et al. (2011).
6

237

for foreign tourism demand (TourShift) and price elasticity of foreign

tourism demand (TourElas):

f tde TourShif t 

er
ptour

TourElas1

where
er
ptour

is the foreign exchange rate

is the price for tourism-related exported goods.

The parameter in modelling tourism demand shock is TourShift. To

calculate this parameter, we need to obtain the information for the
base case i.e. the base scenario without a large-scale event occurring,
as well as an increase in tourism earnings contributed by holding a
large-scale event. Assume the total tourism exports foreign exchange earnings of international tourism without the effects of a
large-scale event is $5000 million and holding this event will bring
an extra of $100 million to the international tourism receipts. The
ratio of the demand shock to the base scenario would be 100/
5000 = 0.02 and therefore, TourShift is 1.02 (=1 + 0.02).
3. An empirical case: the Beijing Olympics
3.1. The Beijing model and the data
The Beijing model is a single-region static model. Beijing trades with
foreign countries as well as the rest of China. The Beijing 2002 input
output (IO) table is the major data source for building the Beijing
CGE models.7 The 2002 prices used in the tables have been updated to
2005 prices. 8 It includes 130 industries, total exports, and rural and
urban households. Rural and urban households are aggregated into
one representative household. Government is the Beijing Municipal
Government. The main elasticities applied in the model are Armington
elasticity, the transformation elasticity and the substitution elasticity
between factors which are adapted from the Global Trade Analysis Project (Hertel, 1997) database, since no data for China and Beijing have
been found.9 The Armington assumption is used in the model, which
species that domestic goods and imported goods cannot be substituted perfectly by each other (Francois and Reinert, 1997).
The Beijing table contains two types of exports: exports to foreign
countries and to the rest of China. In order to assess the impact of increased tourism expenditures brought by holding the Beijing Olympics, exports to foreign countries are disaggregated into tourism
exports and non-tourism exports to foreign countries. Exports to
the rest of China are separated into tourism exports and
7
The limitation of the 2002 tables is fully recognised. Due to the data limitation, the
best dataset which can be fully accessed for this research is the 2002 IO tables. Two
adjustments have been made to reduce this limitation. First, the original tables with
2002 prices were updated to 2005 prices through considering the GDP expansion, i.e.
multiplying the increased rate of GDP of 2005 to 2002. The reason for updating to
2005 prices is that the main data for modelling tourism impacts, such as foreign exchange earnings of international tourism and its composition, is available for 2005.
The data for new money brought by the Olympics which is model input is available
at 2005 prices. Second, when the model results are generated from the CGE model,
they are updated again from 2005 to 2008 prices, the year when the Beijing Olympics
were held.
8
The main model input the Olympic tourism demand shock was predicted at
2005 prices and thus all data sources and model output are in 2005 prices. The Olympic
tourism demand is adapted from Li and Blake (2009), which will be explained in the
Model simulations section.
9
The GTAP database is a global database and available to the public. Adopting or
adapting the elasticity of existing work and other modelling exercises is the general
practice for most of the CGE models in mainstream economics. These elasticities can
be generated by econometric analysis. However, there is a lack of data for running these econometric analyses and even a lack of econometric analyses even when some data
are available. Most CGE studies use secondary data from other studies for elasticity use.
In order to reduce the limitation of this practice, this paper runs sensitivity analysis by
changing the key elasticities to test the reliability and condence of the model.

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S. Li et al. / Economic Modelling 30 (2013) 235244

non-tourism exports to the rest of China. The disaggregations are

supported by the data of composition of tourism expenditure in Beijing (Appendix A). Values of foreign exchange earnings for each
item (Appendix A) are assigned to tourism exports of the corresponding industries. Non-tourism exports are obtained by subtracting tourism exports from the total exports. The same approach is applied to
the separation of exports to the rest of China into tourism exports
to the rest of China and non-tourism exports to the rest of China.
For the purpose of presenting the results at the industry level, the
130 industries are aggregated into thirteen industries 10: primary industry, secondary industry, ten tourism-related industries and other
tertiary industries. Tourists are dened as persons travelling to and
staying in places outside their usual environment for not more than
one consecutive year for leisure, business and other purposes not related to the exercise of an activity remunerated from within the place
visited (UN/WTO, 1994:5). In this paper, tourism related industries
are dened as the industries which directly supply products or offer
services to tourists. These tourism products and services include air,
railway and highway transport, accommodation, food and beverage,
shopping, post and telecommunications, tickets of tourism spots, culture and entertainment and other. The ten tourism-related industries
remain separated as this paper focuses on the impact of increased
tourism receipts brought by the Beijing Olympics and the majority
of tourist receipts ow into these industries.
The equations of the mark-up of non-tourism exports and domestic goods (Appendix B) are developed from the general mark-up function (Formula 1). The number of rms in industry j (Nj) is a key
parameter in estimating the mark-up. Nj for the Beijing model is generated according to concentration ratios for rms by industry. The
concentration ratio reects the market share (or market power) of
the largest businesses, which could also show the market structure.
If concentration ratios for the top M businesses are very low, 11 it
means that top M of the largest businesses accounts for a small
share in the market and there are a number of small or medium
rms competing in the market. This indicates that the market is
close to a perfectly competitive market. Conversely, if concentration
ratios are very high, then the market structure is close to monopoly.
As the data for Beijing and China are not available, we calculate concentration ratios using data collected from Datastream. 12 Datastream
classies forty industries for each country and each industry contains
nancial data for listed companies. Static data for sales (revenue)
for each listed company in China in 2005 were obtained from
Datastream. 13 The percentage of sales of the two largest listed companies over the total sales of all listed companies in each industry is
calculated. Datastream also classies travel and leisure as one of the
forty industries in its database. For the purpose of this research, listed
rms in travel and leisure are further classied into seven different
tourism-related industries, including airlines, railways, tourism, accommodation, road transportation, catering and recreational services.
10
It should be noted that industries in the IO table are not aggregated before running the model but after generating the results. The original model output (generated
in GAMS/MPSGE) shows results for all 130 industries for Beijing. It is inconvenient to
show the results for all 130 industries. Therefore, the 130 industries are aggregated
for the purpose of presenting the results more clearly.
11
M can be assigned to different number of rms, such as 2, 5, 10 or 20 rms.
12
Collecting data for research on China's issues is important but difcult given that
many data are neither existing nor available to the public. It seems even more difcult
when tourism-related data are required. Therefore, the best data the authors can adopt
and adapt to estimate concentration ratios for tourism-related industries in China are
data of listed companies obtained from Datastream.
13
Datastream provides both market and accounting data of listed rms in different
countries. Listed companies normally consist of the largest rms in each industry.
Therefore, the concentration ratio calculated using Datastream data should be a close
approximation when the real data is not available for China and Beijing. Datastream includes data at the national level but data at the city level is not available. Therefore the
concentration ratios calculated for the China industries are applied to the Beijing industries. This could be a close approximation as the top two rms in many industries
are registered in Beijing.

Concentration ratios for the seven tourism-related industries are also

calculated.
There is a negative correlation between concentration ratio (R)
and the number of rms (Nj): if the concentration ratio (R) in industry j is high which means the competition level is low, then the number of rms (Nj) is small; while if R is low indicating a high
competition level, then Nj is large. There are different forms of mathematical formulas to show a negative correlation between two values.
A simple formula between R and Nj is assumed in this research:
Nj  1=R

where is a scale parameter.

We assign a value of 10 to in the central scenario and 15 and 20
to other two sensitivity analyses. 14 In order to evaluate the impacts of
different formats of formulas on the model results, another two formulas which show a negative relationship between R and Nj are
also employed:
Nj 3010R

20
Nj p :
R

The major types of functions employed in the Beijing models are

the Leontief function, CobbDouglas function, the CES function and
the CET function. Nesting structures are used to illustrate the basic
structure of the model different elasticity parameters and the relation of the inputs and outputs of functions. The Beijing model can be
illustrated in a four-level nesting structure (Fig. 1). From top to bottom, the rst level displays that the total exports are a CET function
of exports to foreign countries and to the rest of China. The second
level shows that production of domestic goods is a CET function of exports and total supply. Total supply is a CES function of imported
goods and domestic goods. The third level includes two forms of functions: domestic goods are Leontief functions of value-added and intermediate inputs; the total imports are Leontief functions of
imports from foreign countries and from the rest of China. In the
fourth level, value-added is a CES function of inputs of factors; intermediate inputs are Leontief functions of each individual intermediate
good.
3.2. Model simulations
There are normally three steps involved in estimating the economic impact of an event using CGE models (Li et al., 2011). The
rst is to estimate the new money injected in the host economy.
In this study, new money is the increased tourism expenditure
brought about by holding the Beijing Olympics. The second step is
to build the CGE model. This paper has built a Beijing CGE model
under both perfect and imperfect competition market structures.
The third step is to shock the model with the new money estimated
in the rst step and analyse the results the economic impact in
terms of such indicators as GDP, employment, welfare or industry impacts. The focus of this paper is on the second and third steps while
the rst step will be briey discussed.
In the rst step, the estimation of the new money is based on the
statistics of the Olympic committee, government reports, tourism bureaus and previous studies. For example, New South Wales Treasury
(1997) and Madden (2002 and 2006) obtained data from the Sydney
14
The scale parameter is assigned by considering two factors. First, cannot be too
small. If is too small, then N is small which leads to a large mark-up rate. The base
market prices can be calculated in the model by subtracting mark-up rate from 1.
Therefore, large mark-up rate which is greater than 1 will generate negative base market prices. Second, cannot be too large. If is too large, then N is large which may go
beyond the realistic number of rms in Beijing.

S. Li et al. / Economic Modelling 30 (2013) 235244

To foreign countries

239

To the rest of China

Total exports

Total supply

Domestic goods

Intermediate inputs

Input(1)

Input(2)

Imported goods

From
foreign
countries

Value-added

Input(n)

Factor(1)

Input(2)

From
rest of
China

Input(n)

Fig. 1. The nesting structure of the Beijing CGE model.

Organising Committee for the Olympic Games and the Olympic Coordination Committee to estimate the new money brought by the
Sydney Olympics. Blake (2005) used the data provided by the London
Olympic Committee when estimating the new money brought by
the London Olympics. Increased tourism expenditure precipitated
by the Beijing Olympics is injected into the economy of the host city
before, during and after the Olympic Games. It is considered a tourism
demand shock to the Beijing model. As estimating Beijing Olympicrelated investment and expenditure is not the focus of this paper,
the data for new money injected into the economy is adapted
from the estimates predicted by Li and Blake (2009). Li and Blake
(2009) has built a framework in evaluating the Olympic expenditure
and investment, which consist of operation expenditure by the Olympic Committee, Olympic-related national and international tourism
expenditure, investment in Olympic-related infrastructure, investment in Olympic venues and related facilities, and exports and foreign
investment legacies. This framework has been applied to estimating
the new money injected into China and Beijing due to holding the
2008 Beijing Olympics. The estimation is based on the data published
by the Beijing Olympic Committee, Beijing and China Bureau of Statistics, Beijing and China Tourism Administration, and Research Ofce of
Beijing Municipal Government.
In previous studies, the impact of holding a mega event is
conceptualised in three stages: pre-event (from the year of being
told that the bid has been successful to the year the event is held),
the year the event is held and the post-event stage. These three stages
normally last between ten and twelve years (Li and Blake, 2009;
Madden, 2006). Tourism expenditure brought to Beijing due to the
Olympics is divided into four categories: Olympic international visitors and tourism legacies, national visitors and tourism legacies. The
estimation was for each year during three stages: pre-Games
(20042007), Games' year (2008) and post-Games (20092013). Li
and Blake (2009) have explained the difference between Olympic visitors and Olympic tourism legacies. Visitors include tourists whose
purpose of visiting the host city is to watch the Olympics or to participate in the Olympics, such as athletes, media visitors, sponsors and
Olympic family. Visitors arrive at a host city during the event. Tourism
legacies include tourists arriving at the host city before or after the
Olympics and their visits are indirectly related to holding the Olympics. For example, extensive media coverage during the Olympics
may build a good image of tourism destination for the host city,
which may generate tourism legacies. Olympic visitors visited Beijing
during the Games' year and tourism legacies generated in pre- and
post-Games stages. The total tourism expenditure generated by holding the Beijing Olympics was estimated as $4948 million in the central scenario by Li and Blake (2009). Different predictions of tourism

spending can affect the economic impact and thus low and high scenarios are designed to show the differences. The low scenario is
one-tenth of the central scenario and the high scenario is ten times
that of the central scenario. 15
To introduce a tourism demand shock to the models, Eq. (2)
discussed earlier will be used. The two key parameters in Eq. (2) are
price elasticity of foreign tourism demand (TourElas) and shift parameter for foreign tourism demand (TourShift). The value of TourElas is
taken as 1.37 according to recent research conducted by Song and
Fei (2006). TourShift can be obtained by calculating the percentage
of the increased tourism receipts brought by holding the Beijing
Olympics over total tourism exports. The increased tourism demand
brought by holding the Beijing Olympics shocks the models through
multiplying each industry in tourism exports by TourShift. 16
Sensitivity analysis was used to test the reliability and condence
of the CGE models. The main assumptions and parameters in the
model, such as elasticities, may introduce uncertainties into the
model. Previously, sensitivity tests 1 and 2 had been introduced
when (in Formula 3) was assigned 15 and 20 respectively. Another
ve sensitivity tests are conducted. In the analysis of the tourism impacts, a key elasticity in the model is the price elasticity of international tourism demand. In order to test the degree of effects that
this elasticity might bring to the results, the base elasticity (1.37)
was halved to be 0.685 and doubled to be 2.74 in sensitivity
tests 3 and 4. Sensitivity analyses 5 to 7 were applied to three groups
of main elasticities: Armington elasticities, output transformation
elasticities, and factor substitution elasticities, used in the model by
doubling one elasticity and maintaining the other two unchanged.
For example, Armington elasticities were doubled while output transformation elasticities and factor substitution elasticities were kept the
same as the base case. Each group of elasticities included 130 elasticities for the 130 industries in the Beijing 2002 IO table.

15
A large scale (ten times) is used in the high scenario in order to clearly show the
inuence of different predictions of model inputs to the model results.
16
For example, to calculate the TourShift for international visitors, the total tourism exports are foreign exchange earnings of international tourism, which are
$3620 million. This is the base case the base scenario without the Beijing Olympics occurring. The increased international visitor expenditure brought by holding
the Beijing Olympics was estimated as $713 million in 2008, which is tourism demand shock. The ratio of the demand shock to the base scenario would be 713/
3620 = 0.2. In order to shock the model, TourShift in the above function is assigned
the value of 1 + 0.2 = 1.2. The TourShift 1.2 multiplies tourism exports to foreign
countries in each industry, which would generate increased tourism demand (demand shock) for the corresponding industry.

240

S. Li et al. / Economic Modelling 30 (2013) 235244

Table 1
The impact of international and national visitors and tourism legacies in Beijing (the central scenario, imperfect competition IC model).
Central scenario

Calculation

International visitors

International tourism legacies

National visitors

National tourism legacies

Change in EV ($, million)

Change in tourism demand ($, million)
Change in real tourism consumption ($, million)
Percentage change in price of tourism consumption (%)
Change in tourism expenditure ($, million)
Change in EV per change in tourism demand
Change in EV per change in real tourism consumption
Change in EV per change in tourism expenditure

A
B
C
D
E
A/B
A/C
A/E

119
713
693
0.337
708
0.167
0.172
0.169

284
1694
1636
0.804
1678
0.168
0.174
0.169

59
449
449
0.0003
449
0.132
0.132
0.132

276
2092
2090
0.003
2090
0.132
0.132
0.132

4. Findings
4.1. The economic effects at the macro-economic level
The equivalent variation (EV) is dened as the income that must
be given to an agent, at some xed set of prices, to make them as
well-off as they would be under some policy change (Hanslow,
2001: 23) or in this paper under demand shocks to an economy by
holding a large-scale event. EV normally employs the money metric
utility function and is the most used indicator when measuring welfare in CGE modelling in the literature (see Ahmed, 2008; Fane and
Ahammad, 2003; Margaret and Mabugu, 2008). In this paper, EV is
employed to measure the economic welfare impact of holding a
large-scale event. As the model assumes that real government consumption is unchangeable, the calculation of EV only captures
changes in private utility (household welfare).
Following other economic impact evaluations, two scenarios are
assumed in this paper: the base scenario, which assumes that the
event would not happen, and the event scenario. The latter causes a
demand shock with extra investment and expenditure brought by
the event. EV in this paper captures the amount of income that
would have to be given to (or taken away from) the host economy
in the base scenario in order to leave the economy as well off as the
economy would be in the event scenario.
Table 1 shows the main results of the impact of the additional
spending of visitors and tourism legacies generated due to holding
the Beijing Olympics under the model with imperfect competition.
The second column shows the calculation for each row. For example,
row A/B is obtained by dividing values in row A by row B. It can be
seen that international ($284 million) and national ($276 million)
tourism legacies contribute much more than international ($119 million) and national ($59 million) visitors' expenditure respectively to
the change in EV which measures the household welfare gains (row
A) in 2008 prices. In general, results from row A to row E for the columns of both international and national tourism legacies are larger
than those of visitors respectively. It might be because Table 1 reports
on the total tourism legacies for ten years (20042013), while it reports on visitors for only one year (2008). The ndings reveal the importance of encouraging tourism legacies and prolonging the period
of legacies when holding sports events.
In each column, the changes in real tourism consumption (row C)
are less than the changes in international tourism demand (row B),
which is the demand shock brought by holding the Beijing Olympics.
This occurs because there is an increase in price of foreign tourism consumption (row D), which offsets international tourism demand. The
change in tourism expenditure (row E) is the combination of the
changes in real tourism consumption (row C) and the price of tourism
consumption. Every unit change in tourism demand (row A/B) leads
to a change in welfare by 0.17 and 0.13 generated by international
and national tourism. Each unit of tourism expenditure generates
around 0.17 and 0.13 of the welfare value for international and national
tourism (row A/D). It implies that international tourism contributes

more to the economic welfare than national tourism. This might be because the composition of tourism expenditure by international and national tourists is different (please see Appendix A) international
tourists spend on more expensive tourism products, such as air transports and three to ve star hotels while national tourists may spend
on shopping, food and beverage, which are relatively cheaper tourism
products.
When the results generated from the model with imperfect competition (Table 1) are compared with perfect competition (Table 2)
for both international and national tourism effects, larger changes in
welfare (row A) and in real tourism consumption (row C) can be observed in the imperfect competition model. The ndings can be
explained by pro-competitive and anti-competitive effects, which
have a signicant inuence on the economic impacts generated in
the imperfect competition model.
Pro-competitive effects probably play a dominant role in the Beijing
model with imperfect competition. As discussed in the previous paragraph, pro-competitive effects happen when demand increases in industries which are highly concentrated. The Beijing Olympics would
increase demand for tourism services and products provided by
tourism-related industries and these industries are highly concentrated.
When tourism spending ows into tourism related industries and more
rms enter the market, the level of competition increases, which generates pro-competitive effects. However, demand would decrease in
other industries, such as primary and manufacturing and these industries are highly competitive. This process can generate larger welfare
gains. The concentration ratios R (%) for most of the tourism-related industries such as communication, travel and leisure, transport, accommodation, catering and recreation are above 50%, which indicates that
these industries are highly concentrated. On the other hand, the ratios
for most of the other non-tourism industries are below 50%, which indicates that these industries are highly competitive.
In three scenarios (low, central and high), when the tourism expenditure brought by holding the Olympics varies, it leads to a large
change in economic welfare (see Appendix C). Higher tourism demand can bring higher real tourism consumption, which leads to
larger welfare gains. It implies that it is important to formulate policies to encourage tourism demand during the Olympics. The prediction of increased tourism expenditure in the ex-ante estimation
studies can greatly affect the quality of the ndings. If the expenditure
is over-estimated, changes in welfare brought by holding an event are
likely to be over-estimated.
Seven sensitivity analyses have been designed to evaluate the robustness and reliability of the model results. In the rst two sensitivity
tests, when the parameter in Formula 3 is assigned 15 and 20, changes
in EV and EV per expenditure in the two tests are very close to the base
case ( = 10). In another two tests, when halving and doubling price
elasticity of tourism demand, change in EV per change in tourism expenditure remains almost the same. The nal tests are to double
Armington, output transformation, and factor substitution elasticities
respectively while the other two remain unchanged, and the model
does not change output qualitatively.

S. Li et al. / Economic Modelling 30 (2013) 235244

241

Table 2
The impact of international and national visitors and tourism legacies (the central scenario, perfect competition PC model).
Central scenario

Calculation

International
visitors

International tourism
legacies

National visitors

National tourism
legacies

Change in EV ($, million)

Change in tourism demand ($, million)
Change in real tourism consumption ($, million)
Percentage change in price of tourism consumption (%)
Change in tourism expenditure ($, million)
Change in EV per change in tourism demand
Change in EV per change in real tourism consumption
Change in EV per change in tourism expenditure

A
B
C
D
E
A/B
A/C
A/E

109
713
682
0.526
705
0.153
0.16
0.154

261
1694
1604
1.254
1670
0.154
0.163
0.156

42
449
445
0.014
448
0.095
0.095
0.095

199
2092
2073
0.065
2085
0.095
0.095
0.095

It has been discussed that a simple negative relationship between

the concentration ratio (R) and the number of rms (Nj) is assumed
in Section 3.1 (see Formula 3). To further examine the reliability of
the model, anther two formulas are also employed (see Formulas 4
and 5). Findings were generated when the two functions were applied and these ndings do not seem to differ largely from those generated when Function 3 was employed.
4.2. The economic effects at the industry level
Table 3 shows the total industry impact of Olympic tourism (international and national) generated from the model with imperfect competition. The holding of the Beijing Olympics provided a stimulus to
tourism-related industries through the increase in tourism demand. In
general, tourism-related industries in Beijing experience an increase
in tourism exports to foreign countries and to the rest of China. Tourism
related industries were projected to experience the highest percentage
change of output, which was due to high demand for tourism products
and services. The largest decrease in the percentage change of output
can be observed in water transport, which probably indicates that
most tourists might not choose water transport to travel to Beijing
and thus water transport was largely crowded out. Increased tourism
demand bids up prices in both tourism and non-tourism industries.
The percentage change in price index increased in all industries between 1.040 and 1.302%.
It can be seen that air transport experienced the largest increase in
tourism exports to foreign countries, which was $735.7 million. This is
probably because international tourists spent most money on air transport considering that China is a long-haul destination to countries for
Americans, Europeans and Australians. Other industries were crowded
out by the boom of tourism-related industries, which has also been observed by previous studies, for example, Adams and Parmenter (1995)
and Blake et al. (2008). Primary, secondary and other tertiary industries

experienced a decrease in the percentage change of output. The largest

increase in tourism exports to the rest of China can be seen in secondary
industries ($733.8 million). It might be because secondary industries
supply intermediate inputs, such as construction, manufacturing and
food processing to tourism-related industries and the boom in tourism
demand increases the demand for intermediate inputs.
Table 4 presents the percentage changes in output between PC and
IC market structures. The differences of the impacts at the industry
level between the two market structures are probably attributed to
two factors: the effects of distortions of imperfect competition, and
anti- and pro-competition effects. If the effects of distortions of imperfect competition and anti-competition played a more important role,
the impact generated in the imperfect competition model would be
smaller than the perfect competition. If the impacts of distortions of imperfect competition were offset by the impacts of pro-competition then
the impact generated in the imperfect competition model could be larger than the perfect competition. The percentage change of output in
most tourism related industries was higher under the imperfect competition assumption due to pro-competition effects, which is similar to the
discussion of the effects at the macro-economy level. Although procompetition effects exist in railway transport, the percentage change
in output in this sector was larger under perfect competition, which
can be explained by the dominant role of the effects of distortions of imperfect competition. The concentration ratio for railway transport is
0.988, which reects the fact that railway transport in China is a national monopoly. An increase in tourism demand on railway transport is unlikely to increase the number of railway rms and thus pro-competition
effects in this industry were small while effects of distortions of imperfect competition were large.
Primary, secondary and other tertiary industries were crowded
out with a decrease in percentage change of output. A smaller decrease can be observed in these non-tourism industries under imperfect competition, which may be caused by the combined effects of

Table 3
The industry impact of Olympic tourism (the central scenario, IC model).
Central scenario

Change in tourism exports to

foreign countries (million, USD)

Change in tourism exports to

the rest of China (million, USD)

Percentage change
of price index (%)

Percentage change
of output (%)

Primary industry
Secondary industry
Railway transport
Road transport
Water transport
Air transport
Communication
Accommodation
Catering
Tourism
Residential services
Recreation
Other tertiary industries

15.0
429.7
26.2
104.8
0.4
735.7
84.0
412.0
219.025
148.0
5.1
109.5
91.7

16.0
733.8
93.0
246.1
0.3
167.4
31.3
470.9
542.1
177.5
4.7
156.5
98.2

1.206
1.020
1.194
1.227
1.118
1.302
1.292
1.256
1.195
1.085
1.223
1.040
1.247

0.093
0.168
1.45
0.859
0.364
5.085
0.089
3.003
2.289
10.092
0.041
3.441
0.012

242

S. Li et al. / Economic Modelling 30 (2013) 235244

Table 4
Comparison of the industry impact of the Olympic tourism.
Central scenario

Primary industry
Secondary industry
Railway transport
Road transport
Water transport
Air transport
Communication
Accommodation
Catering
Tourism
Residential services
Recreation
Other tertiary

Percentage change of output (%)

PC model

IC model

0.230
0.237
1.553
0.831
0.303
4.801
0.176
2.855
2.197
9.602
0.003
3.359
0.015

0.093
0.168
1.45
0.859
0.364
5.085
0.089
3.003
2.289
10.092
0.041
3.441
0.012

distortions of imperfect competition and anti-competition. When

there is a decrease in demand in non-tourism industries, most of
which are highly competitive, the number of rms may decrease
which generates anti-competitive effects.

5. Conclusion
This paper has applied CGE modelling with imperfect competition to assess the economic impact of the 2008 Beijing Olympics.
The ndings demonstrate that holding the Beijing Olympics brought
benets to the local people but that the scale of the impact was
not signicant compared to the total size of the economy. The
Beijing Olympics were estimated in this paper to have brought
$119 million and $59 million of welfare gains from Olympic international and national visitors in 2008 respectively. The real gross
domestic product (GDP) in Beijing was $178 billion for 2008
(Beijing Municipal Bureau of Statistics, 2009); the Olympic impact
only accounts for 0.1% of the total GDP in Beijing. Understandably,
the larger the economy of the host city (and country), the smaller
the economic impact from holding a large event as a percentage of
the economy as a whole.
This research has implications for other city authorities who intend to host major sports events for the purposes of economic development. As the ndings suggest, an increase in economic welfare
could be generated in the period after the event if careful planning
is undertaken prior to and during its staging to building an image of
the city as a tourist destination. Indeed, tourism legacy impacts are
considered to be one of the most important reasons why countries
and/or cities take an interest in hosting major events, especially developing countries (Cornelissen, 2004). Those planning the 2012
London Olympics, the 2014 Football World Cup and the 2016 Olympics in Brazil, would, therefore, do well to consider tourism legacies
well in advance of these events. In addition, seeking to obtain direct
economic benets should not be the only reason for developing countries to hold a mega event. There are potentially other socio-cultural
justications that may be equally powerful ranging from promoting
participation in sport to changing the image of particular places.
The paper has revealed that the welfare impacts of the Beijing Olympics under imperfect competition structure are higher than when perfect
competition is assumed. This can be explained by the pro-competitive
effect. Holding the Beijing Olympics attracted additional tourism expenditure on products and services supplied by tourism-related industries.
This increased the number of rms entering these industries which
led to a decrease in mark-up. This pro-competitive process happened
in Beijing because tourism-related industries were highly concentrated.
The ndings imply, therefore, that the economic impact of a sports

event is affected by the market power of different industries in a host

city.
It should be noted that this study only considered one of the main
types of Olympic expenditure event tourism expenditure. Other
Olympic investment and expenditure were specically excluded. Future studies might examine the inuence of imperfect competition
on estimating the economic impact brought by other demand shocks,
such as investment in constructing the event venues and related infrastructure, operational expenditure by the event organising committee and legacies of event stadiums. The method developed for
evaluating tourism expenditure in this paper could also be used to
examine other types of demand shocks. Further simulations would
also be useful. For example, simulations using different policy
scenarios and other elasticities in the sensitivity analysis would
make valuable additional contributions to knowledge in this area.
Finally, this research was conducted ex-ante using static modelling
with imperfect competition. Future studies may develop this work
to incorporate imperfect competition into a dynamic model to assess
the economic impact of sports events. This could be undertaken
ex-post and the results could be compared with the estimates
contained in this paper. The lessons learned from such an exercise
could then be used to inform the deliberations of municipal
policy-makers.
Acknowledgment
The authors would like to acknowledge Professor David Paton and
Professor Weimin Liu at the University of Nottingham for providing
valuable comments on an earlier draft of this paper. We remain responsible for any errors.
Appendix A. Composition of tourism expenditure in Beijing in 2005

Tourism foreign
exchange earnings

Earnings created by
tourists from the rest of
China

Item

Value
($ million)

Percentage
(%)

Value
($ million)

Percentage
(%)

Total
Long-distance
transportation expenses
Air
Railway
Highway
Local transportation
expenses
Accommodation
Food and beverage
Shopping
Post and
telecommunications
Tickets of tourism spots
Culture and
entertainment
Other

3620.0
1277.9

100.0
35.3

15,869.7
2031.3

100.0
12.8

1118.6
39.8
119.5
39.8

30.9
1.1
3.3
1.1

904.6

5.7

626.3
333.0
720.4
123.1

17.3
9.2
19.9
3.4

2729.6
3142.2
3824.6
174.6

17.2
19.8
24.1
1.1

170.1
166.5

4.7
4.6

1444.1
492.0

9.1
3.1

162.9

4.5

1126.7

7.1

Source: Beijing Bureau of Statistics (2006), Tables 152.

The above table displays values and percentage of tourism expenditure on different tourism products and services. It can be observed
that foreign tourists spend most of their money on long-distance
transportation while domestic tourists from the rest of China spend
most of their money on shopping. Tourism foreign exchange earnings
account for a part of total exports to foreign countries and earnings
created by tourists from the rest of China are a part of total exports
to the rest of China. For the purpose of the research, tourism exports
to foreign countries and the rest of China are separated from the total
exports respectively based on the above table.

S. Li et al. / Economic Modelling 30 (2013) 235244

Appendix B. The equations of the mark-up of non-tourism

exported goods and domestic goods
The equation of the mark-up of non-tourism exported goods is
calibrated to be:



!

1


 1
1
1

:
MARKUPNX j 1 omegaj  



j
subddj
Nj
subddj
The equations of the mark-up of non-tourism exported goods and
domestic goods are generated based on existing literature. It is assumed that each sector only produces one variety of goods. See
Blake et al. (1999) for the details of the underlying theory regarding
these equations.
The equation of the mark-up rate of domestic goods is calibrated
to be:

 1
MARKUPDj 1 omegaj 
Nj
"
 ExpendSj 

1
1
subdxj

1
1

subdxj subddj

1
subddj

where
MARKUPNXj is mark-up of non-tourism exported goods in sector j
MARKUPDj is mark-up of domestic goods in sector j
omegaj is a conjectural variation term (a prediction of supplier for
other suppliers' actions after it changes the quantity of production); this parameter is assumed to be zero
is the number of rms in sector j
Nj
is the elasticity of demand for exports in sector j
j
ExpendSj is the share of expenditure for domestic produced good in
total production in sector j
is the elasticity of substitution between demand for domessubdxj
tic and for exported good in sector j
is the elasticity of substitution between domestic goods in
subddj
sector j.
Tourism exports cannot use the mark-up rate of non-tourism
exported goods. Non-tourism goods sell to foreign customers abroad
while tourism exports, such as accommodation and catering sell domestically to foreign visitors arriving at Beijing. Therefore, tourism
exports use the mark-up rate for domestic goods.
Appendix C. Comparisons of the international tourism impact
between the Beijing models with perfect and imperfect competition
in three scenarios
EV ($, million)

Low scenario
Central scenario
High scenario

National tourism

International tourism

(PC)

(IC)

(PC)

(IC)

48
242
1254

67
335
1676

73
373
2019

81
405
2085

In this table, PC refers to perfect competition and IC is imperfect

competition. The increased tourism expenditure generated by the
Beijing Olympics would increase household welfare (EV). In the
model simulation, the increased tourism expenditure is assumed to
be one-tenth in the low scenario and ten times in the high scenario
based on the central scenario. The ndings are compared in the
three scenarios under PC and IC market structures. Larger welfare

243

gains can be observed under the IC structure, which is attributed to

pro-competition effects. Increased tourism expenditure, which is
model input, can qualitatively affect changes in welfare, which is
model output larger model input results in larger model output.

Appendix D. Supplementary data

Supplementary data to this article can be found online at http://
dx.doi.org/10.1016/j.econmod.2012.09.013.

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Dr. ShiNa Li is Senior Lecturer in Events Management at Leeds Metropolitan University. Before she joined Leeds Met, ShiNa worked as a university teacher in Tourism at the
University of Nottingham, where she obtained her PhD. Her thesis topic is The economic impact of mega-events: a CGE approach to the Beijing Olympic Games. Her research interest includes economic and social impact evaluation, tourism economics,
computable general equilibrium modelling, mega-events and developing countries.
Adam Blake is Professor of Economics and Deputy Director of International Centre for
Tourism & Hospitality Research. His expertise includes CGE modelling, tourism economics, poverty and climate change mitigation. One of his most recent projects included a detailed study on the economic impact of London 2012, which formed part of the
UK Government's Olympic Games Impact Study. He has carried out research and consultancy work for key UK government departments, including Culture, Media & Sport,
Revenue & Customs, regional development agencies and the Treasury. He has worked
with the European Commission, as well as a number of overseas governments.
Rhodri Thomas is Professor of Tourism and Events Policy and Head of the International Centre for Research in Events, Tourism and Hospitality (ICRETH) at Leeds Metropolitan University. His research interests include the use of events and festivals to achieve
public policy goals. He is currently working on or has recently completed projects
funded by the Economic and Social Research Council (ESRC), the Organisation for Economic Cooperation and Development (OECD) and various government agencies.