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Effects of Time Zone Related Distance on Trade: Goods vs. Service

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  • Mandal, Biswajit
  • Das, Maitrayee

Abstract

This paper aims to explain that distance may not always be harmful for international trade, unlike the explanations provided by the gravity model. In case of service trade distance may be helpful instead, because of the existence of non-overlapping time zones between two trading countries. So, we will try to examine this phenomenon whether distance is always affecting trade symmetrically. This paper begins by introducing a basic model that examines a two-sector economy and investigates the impact of trade on factor prices and output changes in case of both goods trade and service trade. The findings reveal that in case of service trade, an increase in the geographical distance between trading countries leads to a rise in skilled labour wages, while rent of capital decreases. Consequently, this causes the service sector to expand while the other sector contracts. Conversely, these outcomes are completely reversed in the case of goods trade. Next, the model is expanded to incorporate an informal sector. This extension demonstrates similar effects to those observed in the basic model, but the effects are profound compared to basic model when an informal sector is present. Therefore, our model highlights the contrasting outcomes between goods trade and service trade and emphasizes the intensified effects when an informal sector is taken into account.

Suggested Citation

  • Mandal, Biswajit & Das, Maitrayee, 2023. "Effects of Time Zone Related Distance on Trade: Goods vs. Service," MPRA Paper 118256, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:118256
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    References listed on IDEAS

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    1. Daria Taglioni & Richard Baldwin, 2014. "Gravity chains: Estimating bilateral trade flows when parts and components trade is important," Journal of Banking and Financial Economics, University of Warsaw, Faculty of Management, vol. 2(2), pages 61-82, November.
    2. Rudolph, Stephan, 2009. "The gravity equation with micro-founded trade costs," Dresden Discussion Paper Series in Economics 11/09, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.
    3. Estrella Gómez-Herrera, 2013. "Comparing alternative methods to estimate gravity models of bilateral trade," Empirical Economics, Springer, vol. 44(3), pages 1087-1111, June.
    4. Toru Kikuchi & Sugata Marjit & Biswajit Mandal, 2013. "Trade with Time Zone Differences: Factor Market Implications," Review of Development Economics, Wiley Blackwell, vol. 17(4), pages 699-711, November.
    5. Melitz, Jacques, 2007. "North, South and distance in the gravity model," European Economic Review, Elsevier, vol. 51(4), pages 971-991, May.
    6. Marjit, Sugata, 2007. "Trade theory and the role of time zones," International Review of Economics & Finance, Elsevier, vol. 16(2), pages 153-160.
    7. Mandal, Biswajit, 2011. "Would Recessionary Shock Induce More Intermediation in the Informal Sector?," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 26, pages 740-751.
    8. Mandal, Biswajit, 2015. "Distance, production, virtual trade and growth: A note," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 9, pages 1-12.
    9. Biswajit Mandal & Sugata Marjit & Hamid Beladi, 2018. "Reform, informal sector, and extortion," Economics and Politics, Wiley Blackwell, vol. 30(1), pages 106-123, March.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Trade; Time Zone; Factor prices; Output Changes; Informality;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • F1 - International Economics - - Trade
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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