Skip to main content

Advertisement

You are viewing the new article page. Let us know what you think. Return to old version

| Open | Published:

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 %.

References

  1. Alvarez, Fernando, and Robert E. Lucas (2007), “General Equilibrium Analysis of the Eaton-Kortum Model of International Trade”, Journal of Monetary Economics, 54(6), pp. 1726–1768.

  2. Anderson, James E., and Eric Van Wincoop (2004), “Trade Costs”, Journal of Economic Literature, 42(3), pp. 691–751.

  3. Arkolakis, Costas, Arnaud Costinot, and A Rodriguez-Clare (2012), “New Trade Models, Same Old Gains?”.

  4. Barro, Robert J., and Jong Wha Lee (2001), “International Data on Educational Attainment: Updates and Implications”, Oxford Economic Papers, 53(3), pp. 541–563.

  5. Caselli, Francesco (2005), “Accounting for Cross-Country Income Differences”, in Handbook of Economic Growth, P. Aghion and F. Durlauf, eds., pp. 679–741, Elsevier.

  6. CEPII (2006), CEPII Databases — Distances, Centre d’Etudes Prospectives et d’Informations Internationales.

  7. Eaton, Jonathan, and Samuel Kortum (2002), “Technology, Geography, and Trade”, Econometrica, 70(5), pp. 1741–1779.

  8. Eaton, Jonathan, and Samuel Kortum (2010), “Technology in the Global Economy: A Framework for Quantitiative Analysis”, mimeo.

  9. Eaton, Jonathan, and Samuel Kortum (2012), “Putting Ricardo to Work”, Journal of Economic Perspectives, 26(2), pp. 65–90.

  10. Eaton, Jonathan, Samuel Kortum, and Francis Kramarz (2004), “Dissecting Trade: Firms, Industries, and Export Destinations”, American Economic Review, 94(2), pp. 150–154.

  11. Egger, Peter, Martin Gassebner, and Andrea Lassmann (2009), “Armington Product Variety Growth in Small Versus Large Countries”, Swiss Journal of Economics and Statistics, 145(4), pp. 411–419.

  12. Feenstra, Robert C. (1994), “New Product Varieties and the Measurement of International Prices”, American Economic Review, 84(1), pp. 157–177.

  13. Gaulier, Guillaume, Ssoledad Zignago, Dieudonn Sondjo, Adja Sissoko, and Rodrigo Paillacar (2010), “BACI: A World Database of International Trade at the Product-Level, 1995–2007 Version”, Centre d’Etudes Prospectives et d’Informations Internationales Working Paper No. 2010-23.

  14. Mohler, Lukas (2011), “Variety Gains from Trade in Switzerland”, Swiss Journal of Economics and Statistics, 147(1), pp. 45–70.

  15. UNIDO (2003), Industrial Statistics Database, United Nations Industrial Development Organization.

  16. Waugh, Michael E. (2010), “International Trade and Income Differences”, American Economic Review, 100(5), pp. 2093–2124.

  17. World Bank (2010), World Development Indicators, World Bank.

Download references

Author information

Correspondence to Christian Hepenstrick.

Additional information

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.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

JEL-Classification

  • F10
  • F11
  • F14

Keywords

  • Gains from trade
  • Switzerland
  • development accounting