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Variety Gains from Trade in Switzerland

Summary

Since the seminal work of Krugman (1979), variety gains from trade are recognized as an important channel of welfare gains. In this paper, the gains from variety are estimated for Switzerland. It is found that despite the openness of the Swiss economy these gains are not substantial and smaller than in other countries; specifically compared to the gains in the United States. It is shown that the reasons for this result are twofold: First, the Swiss imports are shown not to be as differentiated as their U.S. counterparts; consequently, new varieties do not provide the same value to consumers. Second, variety growth of imports in Switzerland is much smaller compared to variety growth in larger countries. It is furthermore shown that this latter effect is quantitatively more important than the first.

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Correspondence to Lukas Mohler.

Additional information

I thank Robert C. Feenstra for helpful comments. I am very grateful to Rolf Weder for constant advice on the project. I also thank my colleagues at the University of Basel, the participants of the ETSG meeting in Warsaw, the FIW conference in Vienna, the YSEM in Berne, the SMYE in Istanbul and the annual congress of the SSES in Geneva for fruitful discussions. I am grateful to an anonymous referee for very helpful comments. I thankfully acknowledge the financial support of the WWZ Forum Basel and of the Swiss National Science Foundation (project no. 100014-124975). An early version of this paper has been presented under the title “Globalization and the Gains from Variety: The Case of a Small Open Economy”.

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Mohler, L. Variety Gains from Trade in Switzerland. Swiss J Economics Statistics 147, 45–70 (2011). https://doi.org/10.1007/BF03399341

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JEL-Classification

  • F10
  • F12
  • F14

Keywords

  • welfare gains from trade
  • trade in variety
  • small open economy