Exchange rate effects on cross-border commuting: evidence from the Swiss–Italian border

Abstract

Abstract Are cross-border workers responsive to changes in the exchange rate between the home and host countries’ currencies? I answer this question by examining the effects of the appreciation of the Swiss franc (CHF) relative to the euro (EUR) on labour supply decisions of Italian cross-border workers. I use hourly data on traffic flows in Ticino, the southernmost canton of Switzerland, together with three additional datasets (the Cross-border Commuter Statistics, the Swiss Earnings Structure Survey, and Google trend data). The results show that a 10% appreciation in the CHF increases the number of cars along the Swiss–Italian border by 1.6–2.7% more than in the rest of the canton. This effect is found only during specific time intervals, which differ according to the direction of traffic flow; specifically, from Italy to Switzerland in early morning, from Switzerland to Italy in the afternoon, and in both directions in late morning. Moreover, when the CHF is stronger, more people from Italy look for jobs in Ticino, and the number of cross-border workers increases in municipalities within a driving distance of up to 10 km from the border. Finally, additional evidence suggests that cross-border workers also react to the appreciation by increasing their number of hours worked.