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The Sources and Magnitudes of Switzerland’s Gains from Trade

Summary

This paper uses the modern workhorse model of quantitative trade theory (Eaton and Kortum, 2002) as a measurement tool to quantify Switzerland’s gains from trade. I find that individual trading partners matter surprisingly little for Switzerland’s welfare because of 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 and typically amount to less than 1 %. The conclusions are different if one considers groups of countries such as for example the EU: participating in a multilateral 25 % trade cost reduction increases Swiss welfare by 11 % relative to the status quo. However, it must also be noted that in the case of non-participation, the actual welfare losses relative to the status quo are modest with less than 1 %.

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Correspondence to Christian Hepenstrick.

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The views expressed here are those of the author and do not necessarily reflect the views of the Swiss National Bank. I thank Philippe Ruh and Claudia Bernasconi for very helpful comments and discussions. I am also grateful to the editors and an anonymous referee for their careful reading of the paper and help to improve it.

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Hepenstrick, C. The Sources and Magnitudes of Switzerland’s Gains from Trade. Swiss J Economics Statistics 152, 1–21 (2016). https://doi.org/10.1007/BF03399420

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JEL-Classification

  • F10
  • F11
  • F14

Keywords

  • Gains from trade
  • Switzerland
  • development accounting