Term Paper GDP Analysis of Switzerland

Introduction: This Term Paper discusses the factors that affect the GDP of Switzerland. How the GDP
of Switzerland’s GDP is affected by the changes that occur due to the changes in these factors. How these
factors perform in Switzerland, and the things that bring changes or cause fluctuations and variations in
these variables or factors. The dependent and independent variables or factors we have selected in this
term paper are;
 Inflation
 Unemployment
 Govt. Debt
There are many other factors which are involved in selecting or effecting the GDP of a country like
Imports of Goods, Exports of Goods, Government Expenditures, House Hold Expenditures, and interest
rates etc.. The reason for selecting this four variables is that they impact the GDP of a country directly.
Any minute change in these variables will directly affect the overall GDP and Economic Growth and
development of a country.
There are a few points that will be discussed in this paper related to the variables as well as many others
with proper data and analysis through the data collected over 30 years from 1990 to 2019. Some of these.
 Role of these variables in a country’s GDP
 Which factors are necessary to increase the overall GDP?
 How fluctuation in any of these variables can affect GDP?
 Inflation and unemployment are directly related to the GDP
Rationale for this paper: This is the requirement of our subject to collect data and figures, statistics about
different countries that how their economic system works, then there are different econometric tests are
performed based on these variables to show the impact of these variables on the GDP of every country.

Summary
This paper will cover all the important factors related to the effect of selected variables on the Gross
Domestic Product (GDP) of Switzerland. First, we analyze the data. There is a Literature review given by
different scholars on this topic. Their perspective about how the GDP of Swiss is affected by these
Variables. The next point of this paper is about the economic model given by us following the steps of
economic research. In the fourth section, there is an analysis of the data using different econometric tests
along with their results to show how is the actual effect taking place. The last section is the conclusion of
the whole paper.

2. LITERATURE REVIEW

The Swiss economy has shown remarkable resilience in recent years in the face of the 2009 financial
crisis and significant currency appreciation in 2015. But the upward momentum in the recovery has been
difficult to maintain and GDP per capita has plateaued since 2008. Inflation has recently returned to
positive territory, supported by unconventional monetary policy tools. The current account surplus is the
largest among OECD countries relative to GDP. In aggregate, the population enjoys a high standard of
living, as measured by GDP per capita and by broader measures of well-being. In particular, jobs and
earnings, personal security, and subjective well-being are especially high. Confidence in government has
increased since 2007. The economy consistently ranks highly in international comparisons. For example,
Switzerland came second in the 2017 IMDWorld Competitiveness Ranking. GDP per capita is the third-
highest in the OECD, due to high levels of employment and labor productivity.
A skilled workforce, reflecting in part Switzerland’s renowned vocational education and training system,
and high (albeit declining) capital intensity, has delivered high labor productivity, wages, and job quality.
At the same time, increasing demand for high-skilled workers has been met in part by immigration,
facilitated by agreements with the European Union. But as digitalization and globalization increase
demand for such workers and if immigration continues to slow, shortages are likely to intensify.

Switzerland continues to provide its citizens with a

high standard of living. The economy has shown
considerable resilience, most recently to the
exchange rate appreciation in 2015. Nevertheless,
growth has been too slow to absorb spare capacity
or raise income per capita meaningfully.
Unconventional monetary policies have helped
return inflation to positive territory, but pose other
risks. The current account surplus remains large.
Fiscal policy is sound, and the federal fiscal rule
has helped lower public indebtedness but it implies
that spending priorities must be funded from other
areas. Ensuring the sustainability of the pension
system and implementing effective policies for
extending healthy working lives are becoming
increasingly urgent.

Swiss labor productivity growth has been falling

since the late-1990s to be one-third of the OECD
average rate in the past decade. Swiss R&D and
innovation are top-ranked but need to be more
widespread across firms and sectors. Boosting
entry by innovative start-ups could reverse the
recent divergence between frontier firms and the
rest. Improving competition, raising trade in
services and investment, and lowering
administrative burdens could boost the creation of
innovative start-ups and revive growth. Higher
education institutions can play a role by enhancing
entrepreneurship through incubators. And the
nation could make more use of its women and
immigrants, neither of whom are achieving their
potential. The Swiss education and training system is well regarded and has contributed to high
employment rates.
Demand for skilled workers has been strong and is likely to continue so. This, together with far-reaching
changes such as digitalization and the risk of declining immigration, will challenge the education and
training system. The supply of tertiary-educated workers will need to be expanded further. Access to
lifelong learning opportunities should be broadened to those outside the labor force and the less well-
educated and take-up by older workers encouraged. Tracking in the school system has been reduced but
still limits the achievement of those from disadvantaged socioeconomic backgrounds.

Over the past decade and a half, Switzerland has enjoyed comparatively strong employment growth
averaging 1.1% per year. Most have been in high-skilled occupations, while the number of middle-skilled
jobs fell. The lack of qualified staff remains a problem (SECO, 2017). Vacancy rates are persistently
elevated in high-skilled sectors such as information technology and finance and insurance. Digitalization
will change the structure of the labor market. Estimates of exposure based on sectors and occupations find
that around half of all current Swiss jobs are at risk.

ANALYSIS OF DATA
After obtaining all the data and formulating an economic model now comes the analysis of all the data
obtained through the economic model and this analysis can be done using different econometric tests and
different procedures such as to measure the shape of the distribution of the data, to check the normality of
this data, Measure the skewness of this distribution of these variables, kurtosis, linear regression and
Multicollinearity. These analysis are as following
Shape of Distribution:
GDP: Over graph show bell shaped showed that the data is normally distributed

Inflation: This graph shows the positive or right-skewness because the tail is on right side

Unemployment: Over graph show bell shaped showed that the data is normally distributed

Dovt.debt: This graph shows the negative or left -skewness because the tail is on left side

Normality: The normal distribution is a probability function that describes how the values of a variable
are distributed. In this case, our sample size is less than 50 (N=39) then we use the Shapiro-Wilk test.
GDP

 Mean >median so this shows that positive or right-skewness

 The skewness and kurtosis for the variable both are lies between -1 and 1
 Skewness =(Mean-median)/S.D=(450.9923-435.2000)/148.36338=0.106
So skewness value fall in the given range so its symmetric data.
Kurtosis
 shows how flat the peak is over kurtosis value is -1.068 – sign indicate greater flatness and
kurtosis value is lies the given range so its mean over variable/data is approximately normal
distribution

Switzerland well placed to take advantage of digitalization and the next production revolution. However,
this depends on the diffusion of innovation and the responsiveness of the education and training system to
changing skill needs.

CONCLUSION
 So our GDP data is approximately normal distributed in skewness and kurtosis.
Switzerland came second in the 2017 IMD World Competitiveness Ranking. GDP per capita is the third-
highest in the OECD, due to high levels of employment and labor productivity. Maintaining
Switzerland’s enviable well-being is the paramount challenge facing policymakers. Trend annual labor
productivity growth has slowed over the past two decades to 0.3%, one-third of the average rate across
OECD countries. Weak competition, especially in some key domestic sectors, generates high prices and
weighs on productivity outcomes. The high employment rate masks a sharp difference in hours worked
between men and women: Switzerland has one of the highest rates of female part-time employment,
reflecting a lack of affordable childcare and tax disincentives for second income earners, as well as
personal preferences. These factors hinder women’s career prospects and lower their well-being.
Inflation

 Mean >median so this shows that positive or right-skewness

 The skewness and kurtosis for the variable both are lies between -1 and 1
 Skewness =(Mean-median)/S.D=(0.017282-0.010000)/0.0191668=0.379
So skewness value falls in the given range so its symmetric data.
Kurtosis
 shows how flat the peak is over kurtosis value 0.224 + value indicates greater peakedness
and kurtosis value lies the given range so its mean over variable is approximately normal
distribution
CONCLUSION
 So our variable/data is approximately normal distributed in skewness and kurtosis.

Unemployment
As Switzerland’s high-income level is closely related to its world-leading employment rate, demographic
change will weigh on living standards unless labor productivity increases. The process has been partly
postponed by immigration. Measures discussed above – including training and career planning – would
increase inclusiveness and the productivity of older workers. Greater integration of immigrants and
women in the labor market would increase well-being, raise productivity, and mitigate the effects of
population aging. Immigrants in Switzerland have one of the highest employment rates within the OECD.
However, their employment rate is lower than that of natives, especially for tertiary-educated immigrants.
Furthermore, Switzerland is currently adapting its law to reduce administrative hurdles to enter the labor
market. Promoting uptake of high-quality language training, adult education, bridging courses and work
placements

 Mean<median which shows negative or left skewness

 The skewness and kurtosis values for the variable both are lies between -1 and 1
 Skewness =(Mean-median)/S.D=(0.21308-0.026000)/0.0196712=-0.238
So skewness value fall in the given range so its symmetric data.
Kurtosis
 shows how flat the peak is over kurtosis value 0.952 + value indicate greater peakness
and kurtosis value is lies the given range so its mean over variable/data is approximately
normal distribution
CONCLUSION
 So our data/variable is approximately normal distributed in skewness and kurtosis.

GOVT.DEBT
 Mean<median which shows negative or left skewness
  The skewness and kurtosis values for the variable both are lies between -1 and 1
 Skewness =(Mean-median)/S.D=(0.336154-0.429000)/0.2551989=-0.363
So skewness value fall in the given range so its symmetric data.
Kurtosis
 shows how flat the peak is over kurtosis value 0.430 + value indicate greater peakness
and kurtosis value is lies the given range so its mean over variable/data is approximately
normal distribution
CONCLUSION
 So our data/variable is approximately normal distributed in skewness and kurtosis.

Conclusion
So we conclude that over 2 variable GDP AND UNEMPLOYMENT are normal distribution and
the other 2 variable inflation and Govt.Debt is not normal because the sign value is less than 0.01
and the graph is to the negative or left skewed.

Multicollinearity:

If the value of the tolerance is greater than 0.1 or VIF value is less than 5 than is not the problem
of multiicollinearity AND if the value of the tolerance is less than0. 1 or VIF value is greater
than 5 than is the problem of multicollinearity.

Coefficientsa

Collinearity Statistics

Model Tolerance VIF

1 Inflation .859 1.165

unemployment .753 1.328

govt.debt .739 1.354

a. Dependent Variable: GDP

Inflation
Tolerance=0.859, VIF=1.165
Tolerance >0.1 and VIF <5 so there is no problem of multicollinearity
Unemployment
Tolerance=0.753, VIF=1.328
Tolerance >0.1 and VIF <5 so there is no problem of multicollinearity
govt.debt
Tolerance=0.739, VIF=1.354
Tolerance >0.1 and VIF <5 so there is no problem of multicollinearity

Conclusion
In over example the tolerance value is greater than point 1 in all independent variable and VIF
value is also less than 5 in all independent variables then we conclude that there is not the
problem of multicollinearity and the independent variable inflation, unemployment and govt-
dept are not highly correlated to each other. Probably the factors like boosting long-term growth
and productivity, . Upgrading education, Enhancing competition, Improving the tax system.
Expanding women’s role in the economy, . Taming the housing market, and Increasing the
efficiency of public spending will help in employment opportunities as well as the overall
growth of the GDP of Switzerland.