Lukas Mohler

Variety gains from trade in Switzerland

SummarySince 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.

Variety Gains and the Extensive Margin of Trade

ABSTRACT Findings from the literature suggest that previous estimates of the variety gains from trade are too small because of the imprecise measurement of the imported variety set under the Armington assumption. In this contribution, the lambda ratios as presented in Feenstra (1994) are first modified by assuming that all import variations are due to extensive margin adjustments. Under this extreme assumption, variety gains increase by a factor of six compared with the baseline Armington product-country variety differentiation case. Second, results from the literature on multi-product firms are used to obtain a more realistic magnitude of the extensive margin of imports by accounting for the entry and exit of firms as well as for product turnover within firms. It is found that welfare gains still increase by a factor of 2.5 compared with the Armington baseline case.

Factor substitution in Swiss manufacturing: empirical evidence using micro panel data

This paper analyzes the relationship between factor substitutability and the energy intensity of manufacturing firms. Specifically, we compare the degree of substitutability between the input factors capital, labor, energy, and material for firms with low, medium, and high energy cost shares using a panel of Swiss manufacturing companies covering the period from 1997 to 2008. Our findings indicate substitutability between almost all production factors with one notable exception. Energy and capital are complements in the energy-intensive firm sample: A 1% increase in energy prices decreases capital use by 0.09%. We show that this complementarity is gradually increasing in the energy intensity of firms and draft important policy implications.

International trade and unemployment: towards an investigation of the Swiss case

The topic of this paper has been motivated by the rising unemployment rate of low-skilled relative to high-skilled labour in Switzerland. Between 1991 and 2014, Switzerland experienced the highest relative increase in the low-skilled unemployment rate among all OECD countries. A natural culprit for this development is “globalization” as indicated by some mass layoffs in Switzerland and as commonly voiced in public debates all over the world. Our analysis, which is based on panel data covering the years 1991 to 2008 and approximately 33,000 individuals employed in the Swiss manufacturing sector, does not, however, confirm this presumption. We do not find strong evidence for a positive relationship between import competition and (low-skilled) individuals’ likelihood of becoming unemployed.

Productivity growth from an international trade perspective

This paper presents a framework to assess the relative importance of three key sources of productivity growth that international trade research focuses on: (1) inter-industry specialization; (2) intra-industry reallocation of resources across heterogeneous firms; and (3) technological progress. We illustrate how to apply the framework by deciphering the productivity dynamics of the Swiss manufacturing industry. We find that intra-industry reallocations are the most important source of growth in aggregate total factor productivity, spurred by the productivity growth of large, incumbent firms and the entry of new firms. Inter-industry specialization and general technological progress, nevertheless, remain important supplementary sources of productivity growth.

Trade in variety and domestic production: Evidence from US manufacturing

Welfare gains from increasing product variety are an important source of the gains from international trade. Previous empirical studies, however, typically focus on measuring gains from imported varieties. This paper introduces a measure to analyze changes in domestically produced varieties to estimate the total variety gains. Our analysis suggests that, for US manufacturing, losses in domestic varieties from 1992 to 2006 seem substantial given the large decline in the number of US establishments. Yet, once we account for the reallocation of resources towards large multi-variety firms, we find considerable domestic variety gains, adding to those from imported varieties.