Virtual trade between separated time zones and growth

Abstract

The purpose of this paper is to propose a model where trade has a direct and positive impact on growth rate of two trading nations beyond the level effect. We use the idea of virtual trade in intermediates induced by non‐overlapping time zones and show how trade can increase the equilibrium optimal rate of growth. In this structure the trade impact goes beyond the level effect and directly causes growth. Typically standard models of trade cannot generate an automatic growth impact. Virtual trade may allow production to continue uninterrupted in separated time zones such as between the USA and India, and that can lead to higher growth for both countries. Later we extend the model to incorporate the accumulation of skills which becomes necessary for sustaining steady state growth.

A new impetus for endogenous growth: R&D offshoring via virtual labor mobility

“…They showed that a reduction of the transaction cost of trade in services due to the advancement of the communications networks increases the endogenous growth rates of both countries. Marjit and Mandal (2017) extended the Kikuchi-Marjit model to an AK-type optimal endogenous growth model. They showed that the liberalization of trade in services can raise not only the level of the GDP of the country but also the growth rate.…”

A simple model of time zone differences, virtual trade and informality

“…2. For example, India’s service sector has grown rapidly after liberalization and this is particularly because of software exports which require a virtual platform. Marjit and Mandal (2017) points out that this growth in service exports, to a great extent, is the result of India’s geographic location.…”

“…To exploit this possibility, TZ of trading partners or countries must be non-overlapping [3]. This issue has been explained very nicely in Marjit (2007), Kikuchi (2011), Kikuchi and Marjit (2011), Kikuchi et al (2013), Anderson (2014), Dettmer (2014), Head et al (2009), Matsuoka and Fukushima (2010), Nakanishi and Long (2015), Mandal et al (2018b), Fink et al (2005), Mandal (2015), Marjit and Mandal (2017), etc. [4].…”

“…Mandal (2015) also deduce the possibility of growth through an increase in capital accumulation in an extended model of Kikuchi and Marjit (2011). There is another interesting paper, [Marjit and Mandal (2017)] which delineates why trade across TZ helps to attain a “higher steady-state growth.” Nakanishi and Long (2020), the latest one so far also observes that trading labor services across TZ increases the endogenous growth rate. There has also been research on how virtual trade across TZ affects factor prices and their demand, along with changes in output.…”

“…Virtual trade refers to the exchange of services done using the communication technology like e-mail, teleconferencing, video conferencing and many other information sharing tools.2 For example, India's service sector has grown rapidly after liberalization and this is particularly because of software exports whose transactions require a virtual platform Marjit and Mandal (2017). points out that this growth in service exports is to a great extent a result of India's geographical location which makes it to be in a different time zone from its major partners.3 By non-overlapping time zone we mean, one country's day does not coincide with the other i.e.…”