Time Zone Differences and Trade in Heckscher-Ohlin Setup

Abstract

The chapter uses another workhorse of international trade theory—Heckscher-Ohlin model—to explain how service trade has been facilitated because of the availability and development of Information and Communication Technology (ICT). With this backdrop, the theoretical model developed in this chapter points to the emerging theory of time zone (TZ) differences and trade where time zone difference between two countries evokes service trade given the availability of ICT. Thus, a simple 2 × 2 general equilibrium framework is considered to explain the effect of trade across non overlapping time zones on factor prices and output. Results show a rise in wage of skilled labor and a fall in rent conditional on the assumptions of factor intensity. In case of output, the sector exploiting the time zone difference is seen to expand while the other contracts independent of factor intensity assumption. We also extend the basic model to check if distance has any implication for our result.