Let's Get This Right: Swiss GDP and Value Added by Industry from 1851 to 2008

This paper combines various data sources on value added and GDP for Switzerland in order to construct long-¬â€term series from 1851 to 2008. I provide an extensive discussion of deflation methods and show that the recent update of the Swiss GDP per capita series in the Maddison database relies on a statistical artifact. This update suggests that Switzerland was already an extremely rich country in 1851 and that it was by far the richest economy in the world for practically the whole period between 1890 and 1980. Important relative price changes have occurred in Switzerland between 1945 and 1990. Double-¬â€deflated GDP estimates like those of the recent update are erroneous, when price indices are not regularly rebased, and even then, they do not account for gains and losses from relative price changes. In the case of Switzerland, this leads to significant underestimation of the growth rate and, since GDP is constructed backward from the 1990 benchmark, to a GDP level, which is between 40 and 70% too high for the whole period before 1945. I propose an alternative GDP series, which is deflated by the consumer price index. This series suggest that Switzerland was not all that rich. The contributions of this paper are three-¬â€fold. First, it provides a GDP series for Switzerland that builds on reliable sources and is very much in line with other types of evidence (international benchmark comparisons and international wage comparisons). Second, it points out a methodological problem of double deflation that might also be a source of error in the GDP series of other (small open) economies. Third, it throws a different light on the development trajectory of Switzerland shifting the accent from proto-¬â€industry and the first industrial revolution to the second industrial revolution and the post-¬â€WWII boom. This has also an incidence on the identification of the possible sources of Swiss growth shifting the focus from protestant immigration to market integration during the second half of the 19th century and the post-¬â€1945 boom. Limited openness might be responsible for the Swiss growth slack between 1973 and 2000.