Trade Variations due to Time Zones Related Distance and Delaying Costs: A Theoretical Exposition

Abstract

This paper constructs a competitive trade model involving countries in two distinct time zone locations. Our results suggest that geographical distance positively impact service trade, in contrast to its harmful nature for goods trade. These results are not in line with the traditional gravity arguments of international trade. Our model also reveals an intriguing relationship: an increase in distance between trading nations results in higher skilled wages and lower rent in case of service trade, while goods trade yields the opposite effect. We then connect distance with delaying cost and find the effects of delaying cost on trade and factor prices. We further extend our basic model to introduce informal sector and government manufacturing sector. Despite these additions, the consistency in the effects of distance on factor prices and output persists.