Export Sophistication and Exchange Rate Elasticities: The Case of Switzerland

Author Name THORBECKE, Willem  (Senior Fellow, RIETI) /KATO Atsuyuki  (Research Associate, RIETI)
Creation Date/NO. June 2014 14-E-031
Research Project East Asian Production Networks, Trade, Exchange Rates, and Global Imbalances
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In 2011, Switzerland announced a floor for the Swiss franc, and it immediately depreciated by 10 percent. Many argue that depreciations should not matter for Switzerland's export basket because luxury brands and high value added products predominate, and these should compete on quality rather than price. We measure the sophistication of Swiss exports using Hausmann et al.'s (2007) and Kwan's (2002) measures and find them to be the most sophisticated in the world. We also estimate export equations and find price elasticities exceeding unity. These findings run counter to the claim that countries exporting high end goods should have low exchange rate elasticities.