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The sources and magnitudes of Switzerland’s gains from trade

  • Christian Hepenstrick

This paper adapts the modern workhorse model of quantitative trade theory (Eaton and Kortum, 2002) as a measurement tool to quantify the magnitudes of Switzerland’s gains from trade. I find that the importance of single trading partners for Switzerland’s welfare is surprisingly small. The reason are reallocation effects - if trade between Switzerland and some partner country is inhibited, other supplier countries step into the breach so that the losses are limited. However, if one considers groups of countries, for example the EU, the welfare effects become large. In terms of policy this implies that whereas bilateral trade agreements may be important for particular industries per se, their relevance lies primarily in ensuring that the Swiss trade costs remain constant relative to trade costs within large trading blocks.

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Paper provided by Department of Economics - University of Zurich in its series ECON - Working Papers with number 006.

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Date of creation: Feb 2011
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Handle: RePEc:zur:econwp:006
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  1. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting trade: firms, industries, and export destinations," Staff Report 332, Federal Reserve Bank of Minneapolis.
  2. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  3. Lukas Mohler, 2011. "Variety Gains from Trade in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 147(I), pages 45-70, March.
  4. Michael E. Waugh, 2009. "International trade and income differences," Staff Report 435, Federal Reserve Bank of Minneapolis.
  5. Barro, Robert J & Lee, Jong-Wha, 2001. "International Data on Educational Attainment: Updates and Implications," Oxford Economic Papers, Oxford University Press, vol. 53(3), pages 541-63, July.
  6. Gaulier, Guillaume & Zignago, Soledad, 2004. "Notes on BACI (analytical database of international trade). 1989-2002 version," MPRA Paper 32401, University Library of Munich, Germany.
  7. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March.
  8. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
  9. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  10. Peter Egger & Martin Gassebner & Andrea Lassmann, 2009. "Armington Product Variety Growth in Small versus Large Countries," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(IV), pages 411-419, December.
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