chapter  11
8 Pages

Growth with time zone differences

In other words, due to the communications revolution, time zone differences may become a primary driving force behind business services trade.2 It is increasingly recognized that the rapid growth of India is attributable to this kind of business service trade utilizing time zone differences.3 Related to these phenomena, Marjit (2007) examined the role of international time zone differences in a vertically integrated Ricardian framework. It has been shown that time zone differences emerge as an independent driving force of international trade besides taste, technology, and resource endowment.4 Yet to be determined is the dynamic effect of this kind of intermediate business services trade utilizing time zone differences. Based on casual empiricism, we believe that time-saving technological improvements (e.g., the utilization of communications networks such as the Internet) can trigger a series of events that leads to a permanent increase in productivity. In the existing literature on growth and trade, however, relatively few attempts have been made to address the effect of time zones on growth. This seems to suggest that the focus on trade involving

different time zones should be accompanied by a focus on its effect on growth. The main purpose of this study is to illustrate, with simple growth theory, how a time-saving improvement in business services trade benefiting from different time zones can have a lasting impact on productivity. For these purposes, following Acemoglu and Ventura (2002), we propose a simple two-country AK model of intermediate services trade that captures the role of time zone differences.5 Two countries (Home and Foreign) are assumed to be located in different time zones and there is no overlap in daily working hours. The key assumption is that domestic business services production requires one workday and that products are ready for sale after one workday: the delivery of domestic business services involves significant costs in terms of delay. In contrast to this, the utilization of communications networks allows for production in a foreign country where non-overlapping work hours and business services trade via networks enable a quick delivery and low shipping costs. For these reasons, imported services whose production benefits from time zone differences provide higher value than domestically produced services. Although this assumption is at odds with that of the standard model with trade costs, it captures the idea that final good producers would like to have services sooner rather than later.6 Based on the model outlined above, this study shows that an acceleration in intermediate business services trade using different time zones can have a permanent impact on productivity. The structure of this chapter is as follows. In section 11.2 we present the basic model. The impact of a time-saving technological improvement on growth is considered in section 11.3, followed by concluding remarks in section 11.4.