This study assesses the effects of liberalising services provisions in Switzerland and the EU. The objective of the study is twofold. The first objective is to measure the current level of regulation of services provision in Switzerland and the EU. The second objective is to calculate the economy wide effects in Switzerland of a services liberalisation in Switzerland and the EU.
We find that the level of regulation in Switzerland is of the same magnitude as in the EU in business services, distributive (retail and wholesale) trade and air transport. For regulated professions, regulation is lower in Switzerland compared to the EU and the same goes for rail freight transportation. The rest of the infrastructure sectors, i.e. telecommunications, electricity, postal services and rail passenger transport are much more regulated in Switzerland than in the EU. This could indicate a large potential for Switzerland to liberalise its infrastructure sectors.
The economy wide effects are calculated for a number of scenarios representing different degrees of liberalisation in Switzerland and the EU. Hence, the scenarios provide insight into what drives a successful liberalisation yielding economic gains for Switzerland, but they do not serve as suggestions as to how Switzerland should design an actual services liberalisation.
In the scenario providing the upper bound for the economy wide effect in Switzerland, Switzerland is assumed to liberalise while the EU is assumed not to liberalise. We find that this will increase welfare in Switzerland by around 2 percent equivalent to a consumption increase of 5.2 billion CHF. Moreover, employment is expected to increase by 0.6 percent. In the opposite scenario EU is assumed to liberalise while Switzerland is assumed not to liberalise. We find that this leads to a 0.3 percent lowering in Swiss welfare equivalent to a consumption decrease of 0.8 billion CHF.
The results in these two scenarios illustrate that the main driver of economic gains for Switzerland is the country’s own extent of liberalisation, not higher demand in the EU caused by EU liberalisation. In the former scenario, the Swiss liberalisation increases productivity and lowers prices in Switzerland which has a strong positive effect on the domestic market, and at the same time the relative competitiveness of Swiss firms, i.e. firms operating in Switzerland, is strengthened compared to their EU competitors. Both effects contribute to higher welfare and increasing employment. In the latter scenario, where only the EU liberalises, Swiss firms experience a drop in relative competitiveness compared to EU firms. This in turn reduces Swiss welfare; even though this effect to some extent is mitigated by a general increase in demand in the EU leading to more trade across borders for all countries, including Switzerland. The expected decrease in Swiss welfare of 0.3 percent in this scenario indicates that the negative effect of lower relative competitiveness of Swiss firms dominates the positive effect of increasing cross-border supply due to higher EU demand.
