Swiss Trade Monitor - 14 - Dynamic Gravity

The so-called gravity model of trade holds that nations trade most with countries that (i) have a large GDP and (ii) are geographically close.

The implications of this model are valid for Switzerland, too. Its trade flows are weaker with distant and small economies in contrast to geographically close and big economies.

One corollary that follows from the gravity model is that a country's trade flows should increase most strongly with nations that feature the largest growth rate of their GDP. Again, data for Switzerland supports this empirically.

Among countries that have experienced large absolute increases in their GDP in the recent decade, Switzerland has no free trade agreement (FTA) in force with the US, India, Australia, or Vietnam. In this regard, our analysis sheds light on priorities for Swiss trade policy negotiations.