The Geographical Composition of Swiss Foreign Trade: A Semiflexible Approach

This paper models the geographical composition of Swiss foreign trade. Imports and exports are disaggregated into nine regions which together cover the entire OECD area. Given the large size of the model, the use of a flexible functional form is problematic. An attractive alternative is provided by semiflexible functional forms. These allow for large savings in terms of the number of parameters, and yet they are still able, under certain conditions, to provide a second-order approximation to an arbitrary aggregator function. Our results show that there are significant substitution - but also complementarity - relationships in Swiss foreign trade.