A simple model of time zone differences, virtual trade and informality

Mandal, Biswajit and Prasad, Alaka Shree (2018): A simple model of time zone differences, virtual trade and informality.

Abstract

In this paper we attempt to model virtual trade resulting from time zone differences in an otherwise Heckscher-Ohlin set up which is absent in the literature. So, this paper tries to add some value to the existing stuff on the trade theory and the role of time zones. In doing so, it has been proved that exploitation of time zone difference benefits skilled labor only under reasonable assumption. Contrarily, in output font, time zone difference exploiting sector expands and the other sector contracts irrespective of any factor intensity assumption. The model has been extended to examine how distance may also lead to similar outcomes. In addition, the model is further extended to explore the effect of virtual trade on an economy also endowed with a huge supply of unskilled labor causing the occurrence of informality and associated corruption. Interestingly trade turns out to be beneficial to unskilled workers and lead to a fall in the number of workers engaged in corrupt activities in the economy though the informal sector expands.

• Item Type: MPRA Paper
• Language: English
• Keywords: Trade; Time Zone; Factor Prices; Informality; Corruption
• Subjects: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D73 - Bureaucracy ; Administrative Processes in Public Organizations ; Corruption; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E26 - Informal Economy ; Underground Economy; F - International Economics > F1 - Trade; F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade; J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials

References

References

Anderson, E. (2014). Time differences, communication and trade: Longitude matters II. Review of World Economics, 150 (2), 337-369.

Bhagwati, J. N. (1982). Directly unproductive profit seeking (DUP) activities. Journal of Political Economy, 90 (5), 988–1002.

Dettmer, B. (2014). International service transactions: Is time a trade barrier in a connected world? International Economic Journal, 28 (2).

Fink, C., Mattoo, A., & Neagu, I. C. (2005). Assessing the impact of communication costs on international trade. Journal of International Economics, 67 (2), 428-445.

Head, K., Mayer, T., & Ries, J. (2009). How remote is the offshoring threat? European Economic Review, 53 (4), 429-444.

Jones, R. W. (1965). The structure of simple general equilibrium models. The Journal of Political Economy, 73 (6), 557-572.

Kikuchi, T. (2011). Time zones, communications networks and international trade. Routledge Studies in the Modern World Economy.

Kikuchi, T. (2006). Time zones, outsourcing and patterns of international trade. Economics Bulletin, 6, 1-10.

Kikuchi, T., & Marjit, S. (2011). Growth with time zone differences. Economic Modelling, 28 (1-2), 637-640.

Kikuchi, T., Marjit, S., & Mandal, B. (2013). Trade with time zone differences: Factor market implications. Review of Development Economics, 17 (4), 699-711.

Mandal, B. (2015). Distance, production, virtual trade and growth: A note. Economics: The Open-Access, Open-Assessment E-Journal, 9 (2015-1), 1-12.

Mandal, B. (2011). Would recessionary shock induce more intermediation in the informal sector? Journal of Economic Integration, 26 (4), 740-751.

Mandal, B., & Chaudhuri, S. (2011). Informal wage, informal price and extortion under migration and tariff reform. Modern Economy, 2 (1), 39-44.

Mandal, B., Marjit, S., & Beladi, H. (2018a). Reform, informal sector, and extortion. Economics and Politics, 30 (1), 106-123.

Mandal, B., Marjit, S., & Nakanishi, N. (2018b). Outsourcing, factor prices and skill formation in countries with non-overlapping time zones. Eurasian Economic Review .

Marjit, S. (2007). Trade theory and the role of time zones. International Review of Economics and Finance, 16 (2), 153-160.

Marjit, S., & Kar, S. (2011). The outsiders: Economic reform and informal labour in a developing economy. New Delhi: Oxford University Press.

Marjit, S., & Mandal, B. (2017). Virtual trade between separated time zones and growth. International Journal of Economic Theory, 13 (2), 171-183.

Matsuoka, Y., & Fukushima, M. (2010). Time zones, shift working and international outsourcing. International Review of Economics and Finance, 19 (4), 769-778.

Nakanishi, N., & Long, N. V. (2015). The distributional and allocative impacts of virtual labor mobility across time zones through communication networks. Review of International Economics, 23 (3), 638-662.

Prasad, A. S., Mandal, B., & Bhattacharjee, P. (2017). Time zone difference, comparative advantage and trade: A review of literature. Eurasian Journal of Economics and Finance, 5 (3), 1-16.