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The sources and magnitudes of Switzerland’s gains from trade


Hepenstrick, Christian (2011). The sources and magnitudes of Switzerland’s gains from trade. Working paper series / Department of Economics No. 06, University of Zurich.

Abstract

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.

Abstract

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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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:F10, F11, F14
Language:English
Date:February 2011
Deposited On:25 Nov 2011 10:13
Last Modified:05 Apr 2017 23:02
Series Name:Working paper series / Department of Economics
ISSN:1664-7041
Official URL:http://www.econ.uzh.ch/wp.html

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