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Virtual trade between different time zones, educational capital and corrupt informal sector

Prasad, Alaka Shree and Mandal, Biswajit (2019): Virtual trade between different time zones, educational capital and corrupt informal sector.

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Abstract

With the help of a stylized economy resembling the features of a developing country endowed with huge supply of unskilled labor, informality, informality related corruption and limited supply of educational capital we examine how virtual trade with a country located in a geographically different time zone affects the factor prices and subsequently output of different sectors. We show that skilled labors and educational capital owners are the beneficiaries of virtual trade. The service sector expands and the formal and informal good producing sectors contract along with the number of people engaged in corruption related intermediation. Following this, we also check the effect of a fall in the extent of cost of corruption. Results show an increase in unskilled wage and outflow of educational capital thus hurting the skill intensive sector. We proceed further to club the effects of both virtual trade and fall in cost of corruption and explore the consequences. Interestingly, both skilled and unskilled labors benefit. The effect on output and intermediators, however, is ambiguous.

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