Trade with Time Zone Differences: Factor Market Implications

• Author: Biswajit Mandal,Sugata Marjit,Toru Kikuchi
• Published date: 01 November 2013
• DOI: http://doi.org/10.1111/rode.12060
• Date: 01 November 2013

Trade with Time Zone Differences: Factor

Market Implications

Toru Kikuchi, Sugata Marjit, and Biswajit Mandal*

Abstract

The main purpose of this study is to illustrate, with a simple two-factor (skilled and unskilled labor) model,

how a time-saving improvement in business-services trade benefitting from differences in time zones can

have an impact on national factor markets. In doing so, we intend to capture the situation where the night-

shift work in one country is replaced by the day-shift work in another country. In other words, we will show

that trade with time zone differences will result in shifts of the relative supplies and demands for skilled

labor around the globe.

1. Introduction

In recent decades, trade in many kinds of intermediate goods and services has

increased between developed and developing countries. Trade in intermediate goods

has been at the core of economic research for a long time, but trade in intermediate

services has occupied the front seat in economics literature in the recent past. There is

no denying the fact that abundant supply of skilled urban workforce influences the

pattern of trade in intermediate services which really does not require the physical

relocation of labor. Accordingly, offshoring of business services such as engineering,

consultancy, software development, call centers, health care industry, electronic

industry, online school of languages, media, hospitality industry, etc, which do not

need physical shipment of products, plays a major role in today’s world trade. The

availability of the global high-bandwidth network infrastructure has increased the fea-

sibility of reducing costs by going offshore.

In addition the difference in time zones has acted as a catalyst to “virtual trade” in

intermediate services. Massive reduction in cost of information communication tech-

nology coupled with the advantage of time zones differences between countries have

invited new types of business-service trade. The semiconductor industry provides a

prime example. According to Gupta and Seshasai (2004):1

by involving specialized microchip design engineers located at multiple

places around the world, a semiconductor chip design firm may create

virtual “24-hour knowledge factories.” It provides the firm with access

to high-talent designers who would otherwise have to move to a differ-

ent country, or work at odd hours of the night.... The creation of

* Marjit: Centre for Studies in Social Sciences, R-1 Baishnabghata Patuli Township, Kolkata-91, India,

E-mail: smarjit@hotmail.com/marjit@gmail.com; Kikuchi: Kobe University, Japan; Mandal: Department of

Economics, University at Albany-SUNY, Albany, NY, US and Visva-Bharati University, Santiniketan,

India. The idea and design of the paper owe a lot to our departed friend Toru Kikuchi. We are completing

his unfinished work. We are greatly indebted to an anonymous referee for his detailed and insightful com-

ments. Sugata Marjit acknowledges without implicating, the Reserve Bank of India (RBI) endowment at

the CSSSC for financial support. The usual disclaimer applies.

Review of Development Economics, 17(4), 699–711, 2013

DOI:10.1111/rode.12060

© 2013 John Wiley & Sons Ltd