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The Sources and Magnitudes of Switzerland’s Gains from Trade
Swiss Journal of Economics and Statisticsvolume 152, pages1–21 (2016)
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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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.