Asymmetric Effects of Time Zone Related Distance on Trade

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 that whether distance is always affecting adversely in case of goods trade and how distance is affecting service trade. Then we will also try to examine the effects of the trade on factor prices, output changes and the changes in sectoral composition even if the economy consists of informal segment along with the formal sectors. Our endeavour in this paper would be to try to explain this with the help of the time zones issues. In this paper we find that with an increase in distance between trading countries the wage of skilled labour will increase and the rent of the capital will decrease in case of service trade. This will also lead to the expansion for service sector and contraction for another sector. These results are exactly reversed in case for goods trade.