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

Mandal, Biswajit and Das, Maitrayee (2023): Effects of Time Zone Related Distance on Trade: Goods vs. Service.

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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.

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