Media Briefings

EXCHANGE RATE FLUCTUATIONS: The impact on cross-border shopping and commuting

  • Published Date: April 2017

Soaring franc causes Swiss shoppers to pop across to Italy each morning – while Italian workers head in the other direction

A strong franc increased daily traffic at the Swiss border as shoppers left and workers arrived, according to new research by Piera Bello, to be presented at the Royal Economic Society's annual conference at the University of Bristol in April 2017.

The study finds that as the Swiss franc appreciated in value against the euro by 20% between 2008 and 2011 (and when it suddenly jumped in value after the Swiss government abandoned its exchange rate peg in 2015), daily commuters from Italy were attracted to work in the Canton of Ticino. At the same time, the residents of Ticino were more likely to cross the border to Italy to go shopping.

In total, a 10% appreciation of the Swiss franc increased the traffic flows at the border by between 2 and 3%. It also increased the number of car accidents.

This is the first study to scrutinise the effects of exchange rate fluctuations on cross-border shopping in a European context. It also provides first evidence of cross-border commuters' sensitivity to exchange rate movements, never before formally documented in economic research.

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International border crossing has become one of the central issues of our time, in a context where many countries have implemented restrictive migration policies and terrorism-related concerns have thrust borders under the spotlight. Understanding the determinants of human mobility is a considerable challenge with important implications for taxation, employment and infrastructure planning.

While most of the economic literature on migration has focused on the determinants of long-term migration decisions, my work studies the relationship between exchange rate fluctuations and short-term travels. I analyse the effects of the appreciation of the Swiss franc on cross-border shopping and cross-border labour supply in Ticino, the southernmost canton of Switzerland.

In 2016, cross-border workers in Ticino accounted for 25% of employees and one in four Swiss consumers went shopping in neighbouring countries at least once a month. By using data on traffic flows (2005-15) I show that the stronger Swiss franc stepped up mobility along the border by increasing the labour supply of Italian commuters and by making cross-border shopping for Swiss consumers much more attractive.

The appreciation of the Swiss franc has increased the number of cars crossing the border by 5-6%. In addition, I demonstrate that there was a simultaneous increase in the probability of a car accident with personal injury in the Swiss municipalities along the border due to the monetary policy shocks.

Over the 2008 -11 period, the Swiss franc soared by almost 20% in value against the euro; and the rise was stopped by the introduction of a minimum exchange rate of 1.20 francs per euro by the Swiss National Bank (SNB) in November 2011. Then, in January 2015, the franc appreciated more sharply when the SNB decided to abandon the minimum exchange rate.

If the benefit deriving from a higher purchasing power of the Swiss franc in the euro area had outweighed the cost of commuting, the revaluation might have increased labour supply from euro area workers. Moreover, the appreciation of the Swiss franc might have made cross-border shopping much more attractive.

I analyse the effects of a stronger Swiss franc on cross-border mobility by using data on traffic flows in Ticino over the 2005-15 period and by identifying two groups of traffic counting stations. Traffic counting stations located within 15km of the border represent my Treatment group, while traffic counting stations located further away from the border, are used as a Control group.

I find that a 10% appreciation of the Swiss franc increases the traffic flows at the border by 2-3% (corresponding to 5-16 additional cars per traffic counting station per hour).

In addition, I observe that the vehicle flows crossing the Swiss-Italian border are affected by the exchange rate only during specific hours, which differ according to the direction of the flow.

The flows towards Ticino are affected only during the morning while the flows from Ticino to Italy are affected during the late morning and the afternoon. These differences across hours and directions point to the role of cross-border shopping and commuting in explaining this effect.

Finally, I show that the appreciation of the Swiss franc increases the hourly probability that a car accident occurs with personal injury by 0.07-0.10%.

The contribution of my work is twofold. To begin with, it is the first study to scrutinise the effects of exchange rate fluctuations on cross-border shopping in a European context.

Second, it provides first evidence of cross-border commuters' sensitivity to exchange rate movements, never before formally documented in the economic literature.

ENDS


‘Border crossings, exchange rate fluctuations and traffic fatalities: evidence from Ticino’
Piera Bello
Università della Svizzera italiana

Contact:

Piera Bello
piera.bello@usi.ch
p.bello@ucl.ac.uk

Figure 1: Treatment group Figure 2: Control Group


Figure 3: Treatment group Figure 4: Control Group