A simple model of time zone differences, virtual trade and informality
Indian Growth and Development Review
ISSN: 1753-8254
Article publication date: 30 June 2020
Issue publication date: 12 March 2021
Abstract
Purpose
This paper aims to strive to model virtual trade resulting from time zone differences in an otherwise Heckscher–Ohlin set up which is absent in the literature. So, the paper adds some value to the existing literature on time zones (TZ) and trade.
Design/methodology/approach
A competitive general equilibrium model is developed first to capture the effect of TZ differences on virtual trade. Then the authors examine, in brief, if distance can be accommodated in such framework. Finally, the authors extend the model to incorporate informality.
Findings
It is seen that exploitation of time zone difference benefits skilled labor and hurts capital under reasonable assumption. In what follows, time zone difference exploiting sector expands, whereas the other sector contracts. Then, the model has been extended to examine how distance may also lead to similar outcomes. In addition, the model is further modified to explore the effect of virtual trade in an informality and associated extortion ridden economy. Interestingly, virtual trade turns out to be beneficial to unskilled workers as well, and leads to a fall in the number of extortionists, though informal production is augmented.
Research limitations/implications
This model is a competitive model that may not clearly reflect the realistic world. However, interestingly this may form the basis of looking into some other appealing dimensions of the real world.
Originality/value
TZ and related communication-cost-driven trade arguments are relatively less explored theoretically. Therefore, the work adds some value to the theoretical understanding of outsourcing in service trade that uses day-night differences across the globe.
Keywords
Acknowledgements
The authors are thankful to the anonymous reviewer and the editor of this journal for providing us with helpful comments and suggestions. A part of the paper is based on a chapter of the PhD thesis of the second author. The paper has benefitted from discussion with Uday Bhanu Sinha, Dibyendu Maiti and Sarbajit Sengupta. However, remaining errors, if any, are our own responsibility.
Citation
Mandal, B. and Prasad, A.S. (2021), "A simple model of time zone differences, virtual trade and informality", Indian Growth and Development Review, Vol. 14 No. 1, pp. 81-96. https://doi.org/10.1108/IGDR-12-2018-0128
Publisher
:Emerald Publishing Limited
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