Journal of Business Cycle Research

, Volume 13, Issue 1, pp 29–52 | Cite as

Are Microstates Necessarily Led by Their Bigger Neighbors’ Business Cycle? The Case of Liechtenstein and Switzerland

  • Andreas BrunhartEmail author
Research Paper


This paper investigates Liechtenstein’s business cycle compared to its neighboring countries (Switzerland, Austria) and other countries with strong economic relations with Liechtenstein (Germany, Italy, France, USA). In contrast to the widespread notion of small countries “importing” the business cycle from bigger nations, it is shown that the real GDP of the microstate Liechtenstein is a leading indicator for the economy of its bigger neighbor Switzerland, regarding the growth rates as well as the output gap. This finding is based on cross correlation analyses and single- and multi-equation Granger causality tests, applying annual data from 1972 until 2014 or 2015. The significant GDP lead of one year is robust across all the various time frames and model specifications and seems to be driven by the goods exports. Also, Liechtenstein seems to react earlier to US business cycle fluctuations. This finding is not only interesting in the context of Liechtenstein and Switzerland but also encourages further research as it indicates the possibility that very small states are not only more exposed to foreign shocks, react more sensitively to international economic fluctuations, and are more volatile than their big “patron” nations—all stylized facts from small state economics literature—, but that their business cycles could be affected earlier.


Business cycles Leading indicators Microstates Liechtenstein Switzerland VAR models Granger causality 

JEL Classification

C22 C32 E32 O52 



The author would like to thank Berno Büchel (University of Fribourg), Martin Kocher (Institute for Advanced Studies Vienna), Wilfried Marxer (Liechtenstein Institute), and two anonymous referees for useful comments.

Supplementary material

41549_2017_13_MOESM1_ESM.pdf (1.3 mb)
Supplementary material 1 (PDF 1382 kb)


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Copyright information

© Springer International Publishing AG 2017

Authors and Affiliations

  1. 1.Liechtenstein InstituteBendernLiechtenstein

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