Switzerland.s Rise to a Wealthy Nation: Competition and Contestability as Key Success Factors

This paper argues that economic competition and political contestability are two key determinants of the successful development of the Swiss economy in the nineteenth and twentieth century. We describe how Switzerland evolved from a relatively poor country with no natural resources and net emigration in 1800 to one of the richest countries of the world two hundred years later. Based on quantitative and qualitative evidence, we argue that early internationalization, open and flexible markets as well as a high degree of competition were crucial for the development of the Swiss economy. In addition, the Swiss political system with its direct democratic elements and the implemented principle of subsidiarity created political contestability that maintained government efficiency and led to political stability throughout history. The combination of these elements seems to explain the Swiss success, but also to make it difficult for otherSwitzerland, development, growth, competition, contestability

Spillovers through banking centers: a panel data analysis of bank flows

This paper presents evidence that spillovers through bank lending contributed to the transmission of currency crises during the recent episodes of financial instability in emerging markets. The innovation of the paper is that it looks beyond aggregated measures of contagion into the structure of bank flows, disaggregating by banking centers. The main findings are that caused by banks’ exposures to a crisis country help predict flows in third countries after the Mexican and Asian crises, but not after the Russian crisis. In the latter, there is evidence of a generalized outflow from emerging markets. The importance of spillovers through centers suggests that countries might reduce contagion risk by diversifying the sources of their financing and by carefully monitoring borrowing from creditors exposed to potential crisis countries

Do Corrupt Governments Receive Less Foreign Aid?

Critics of foreign aid programs argue that these funds often support corrupt governments and inefficient bureaucracies. Supporters argue that foreign aid can be used to reward good governments. This paper documents that there is no evidence that less corrupt governments receive more foreign aid. On the contrary, according to some measures of corruption, more corrupt governments receive more aid. Also, we could not find any evidence that an increase in foreign aid reduces corruption. In summary, the answer to the question posed in the title is 'no.'

International Portfolio Holdings and Swiss Franc Asset Returns

Portfolio Choice, Asset Returns, Switzerland

Financial contagion : spillovers through banking centers

This paper presents evidence that spillovers through shifts in bank lending can help explain the pattern of contagion. To test the role of bank lending in transmitting currency crises we examine a panel of data on capital flows to 30 emerging markets disaggregated by 11 banking centers. In addition we study a cross-section of emerging markets for which we construct a number of measures of competition for bank funds. For the Mexican and Asian crises, we find that the degree to which countries compete for funds from common bank lenders is a fairly robust predictor of both disaggregated bank flows and the incidence of a currency crisis. In the Russian crisis, the common bank lender helps to predict the incidence of contagion but there is also evidence of a generalized outflow from all emerging markets. We test extensively for robustness to sample, specification and definition of the common bank lender effect. Overall our findings suggest that spillovers through banking centers may be more important in explaining contagion than similarities in macro-economic fundamentals and even than trade linkage

Why are Returns on Swiss Franc Asset so Low?

As is well known, the uncovered interest rate parity fails in the short run but usually holds in the long run. This paper analyses the long and short run interest rate parity of 10 mayor OECD currencies and finds that there is a long run failure of the uncovered interest rate parity condition for the Swiss Franc. After correcting for exchange rate changes, mean returns on Swiss assets have been significantly lower than in other currencies, an anomaly not found in any other major currency. The long run return differential has been stable over the last 20 years, transitory structural breaks are only found in times of currency turmoil. We suggest that the return anomaly may be due to an insurance premium against very rare catastrophic events, such as a major war. Supporting evidence for this hypothesis comes from two empirical findings: First, we show that the return differential is negatively affected by large unexpected geo-political events. Second we examine historical data on interest rates differentials and show that the abnormally low level of Swiss returns arises after the first world war only.

Credibility of rules and economic growth : evidence from a worldwide survey of the private sector

Economic theory and case study evidence have long suggested that institutional factors, such as well-defined property and contract rights, may be crucial in explaining differences in economic performance across countries. Much of the recent discussion about"governance"has, for example, focused on the role of corruption and its consequences for investment and growth. By comparison, the empirical literature relating institutional factors with growth has been relatively scarce and has mainly concentrated on crude proxies such as'political instability and macroeconomic volatility. The problem of most of these variables in that they inadequately capture the uncertainties that are relevant for entrepreneurs. The authors propose new measure of institutional uncertainty based on the subjunctive evaluations of entrepreneurs. They surveyed the private sector in a broad cross-section of countries. The survey was designed to capture institutional factors such as the predictability of rules, entrepreneurs'fears of policy surprises and reversal, their perception of safety and security of property, the reliability of the judiciary, and their problems with bureaucratic corruption. The authors construct and test a summary indicator of the"credibility of rules,"as well as its components in standard cross-country growth and investment regressions. The main findings: a) the overallindicator of credibility is significantly related with higher rates of investment and growth; b) the credibility indicator calculated for the subsample of small local companies is even more closely related to the growth performance; c) the subindicators"security of persons and property"and"predictability of rule-making"are most closely associated with growth; d) the indicators of"corruption,""perceived political instability,"and"predictability of judiciary enforcement"are most closely associated with investment; and e) preliminary results for an extended sample - including transition economies - indicate that institutional factors may also help to explaining difference in economic performance in these countries.Health Monitoring&Evaluation,Economic Theory&Research,Public Health Promotion,Fiscal&Monetary Policy,Environmental Economics&Policies,Governance Indicators,Economic Theory&Research,Achieving Shared Growth,Inequality,Health Monitoring&Evaluation

Institutional obstacles to doing business : region-by-region results from a worldwide survey of the private sector

Case studies and anecdotal evidence have suggested that uncertainty about policies, laws, and regulations has hampered development of the private sector in many developing countries. The authors present results from a new cross-country survey that provides comparable data on local investors'problem in dealing with the state. The survey was conducted in 69 countries and covers more than 3,600 entrepreneurs. The questionnaire asked 25 questions about investors'perceptions about such issues as the predictability of laws and policies, the reliability of the judiciary, corruption in bureaucracies, and security of property rights. It also asked about general obstacles to doing business and the quality of state-delivered services. The authors discuss their methodology and present many findings. Among them: a) In less developed countries the majority of entrepreneurs constantly fear policy surprises and unexpected changes in rules that can seriously affect their business. Entrepreneurs in Asia have the most trust in government announcements of policy changes and changes in rules; entrepreneurs in the Commonwealth of Independent States are the most cynical about new announcements; and half of businessmen surveyed in Latin America and Central and Eastern Europe do not believe government announcements. b) Entrepreneurs worldwide feel that the cost of doing business is substantially increased by theft and crime and in many developing countries the business community feels that authorities do not adequately guarantee their personal safety and do not reliably enforce their property rights. c) Unreliable judiciaries are perceived as major problems in many developing countries. This applies in particular to the Commonwealth of Independent States and to Latin American countries. d) Entrepreneurs in industrial countries perceived the greatest obstacles to doing business to be tax regulations and high taxes, labor regulations, safety or environmental regulations, financing, regulations for starting new business and operations, and general uncertainty about the costs of regulation. e) Entrepreneurs in South Asia and Southeast Asia ranked the top obstacles to doing business as high taxes and tax regulations, inadequate infrastructure, inflation, labor regulations, and regulations for starting new businesses and operations. f) In the Middle East and North Africa, entrepreneurs considered lack of infrastructure the chief obstacle to doing business, followed by corruption, high taxes and tax regulations, and financing. g) In Central and Eastern Europe, high taxes and tax regulations were the only regulation-related obstacle ranked high, followed by financing, corruption, and inflation. h) The worst obstacles in Latin America were considered to be corruption and inadequate infrastructure, followed by crime and theft, problems with finance, and high taxes and tax regulation. i) In Sub-Saharan Africa the biggest problems were corruption, tax regulations and high taxes, inadequate infrastructure, inflation, crime and theft, and financing.Environmental Economics&Policies,Decentralization,Public Health Promotion,Health Monitoring&Evaluation,Enterprise Development&Reform,National Governance,Environmental Economics&Policies,Health Monitoring&Evaluation,Private Participation in Infrastructure,Small Scale Enterprise

Institutions in transition : reliability of rules and economic performance in former Socialist countries

Building reliable institutions that support a market system is widely believed to be critical to a successful economic transition. The authors present indicators on the predictability of the institutional framework across twenty transition economies -including indicators of the predictability of rules, political stability, the security of property rights, the reliability of the judiciary, and the lack of corruption. They then investigate whether those indicators can explain differences in economic performance. The results suggest that the predictability of the framework may indeed explain a large part of differences in foreign direct investment and in economic growth among transition economies. Political stability and secure property rights are particularly important to entrepreneurial confidence in the economy.Statistical&Mathematical Sciences,Economic Theory&Research,Economic Conditions and Volatility,Environmental Economics&Policies,International Terrorism&Counterterrorism,Governance Indicators,National Governance,Economic Theory&Research,Environmental Economics&Policies,Statistical&Mathematical Sciences

The Demise of the Swiss Interest Rate Puzzle

In this paper we analyzed the violations of UIP for the Swiss Franc against the Dollar, the Euro, the Yen, the NEWLINE Pound and the Canadian Dollar using recent data up to fall 2008. This exercise provides the following main NEWLINE results : first the Swiss interest rate puzzle disappeared, i.e. mean returns on Swiss Franc assets are no longer NEWLINE systematically and significantly lower (as in the 1980 – 1998 sample) when compared jointly with other NEWLINE major currencies in the 1999 to 2008 period. Second and in contrast to earlier evidence we failed to find NEWLINE evidence that geopolitical crises lead to an appreciation of the Swiss Franc in the last ten years. Third even NEWLINE the short run validity of UIP cannot be rejected for the Swiss Franc against the five currencies for the 1999 – NEWLINE 2008 sample. Unfortunately our attempt to locate the time of change and the currencies involved by the NEWLINE application of tests for structural breaks with unknown break point did not lead to clear cut conclusion for the NEWLINE Euro and the Dollar, the two most important foreign currencies from a Swiss perspective