Industry Composition and the Effects of Exchange Rates on Exports - Why Switzerland is Special

We identify the role of industrial composition on the elasticity of aggregate export volume with respect to the exchange rate. In an annual panel covering the time from 1972 to 2000, 865 sectors, and bilateral trade flows between 24 OECD economies, we estimate sectoral elasticities of export volume with respect to the exchange rate. We then combine the resulting 865 elasticity estimates with the weight of each sector in each of the countries' export basket. The resulting country-specific average exchange rate elasticity varies substantially as countries specialize in very different sectors. It ranges from 0.83 for Switzerland to 1.06 inTurkey, with the average being 0.94. Consequently, our results demonstrate that the low response of Swiss export performance to the strong real appreciation of the Swiss Franc observed during 2008 to 2011 can partly be explained by the unique industrial composition of the Swiss economy.