Time differences, communication and trade: longitude matters II

This paper uses a gravity model to examine the effect of time differences between countries on international trade. It builds on previous studies of this issue by including a wider set of control variables, focusing on a longer time period, and testing a series of related hypotheses. The results show that time differences have a negative impact on merchandise trade, with each hour of time difference reducing trade by between 2 and 7 %, although the size of the effect has fallen in recent decades. There is also evidence that the negative impact of time differences is smaller where mechanisms of formal contract enforcement are stronger, and where co-ethnic networks are more prevalent, and that time differences reduce bilateral telephone traffic as well as trade. These results are consistent with the hypothesis that time differences reduce trade by raising the non-pecuniary costs of travel and communication. Copyright Kiel Institute 2014