Research on the Enhancement of National Cultural Soft Power and the Promotion of Foreign Direct Investment: Evidence from the Olympic Effect

Abstract

Holding international sports events is an important way to enhance the country's cultural soft power, and carrying out sports cultural exchange is also an important measure to enhance it. As a large-scale international sports event, the Olympic Games is an important channel for the country to demonstrate its cultural soft power. Facts have shown that although the pre-Olympic investment cost is huge, it can bring lasting economic benefits to the host country. Based on the panel data of outward foreign direct investment from 1970 to 2021, this paper empirically analyzes the promotion effect of hosting the Summer Olympic Games on host country's outward foreign direct investment (OFDI), namely the “Olympic effect”, by constructing the least squares model. This research finds that hosting the Summer Olympics can significantly promote the country's outward foreign direct investment, especially in developing countries with low income and low openness. The mechanism analysis shows that the transmission mechanism of the promotion of OFDI from developing countries hosting the Olympics is to transmit policy signals and thus improve the openness of the country, while the developed countries realize the Olympic effect by significantly boosting the national economic fundamentals (such as unemployment rate, development of tertiary industry, etc.). Further heterogeneity analysis suggests that with the increase of a country's comprehensive strength, the Olympic effect relatively decreases.