Virtual Trade and Comparative Advantage: The Fourth Dimension (Kobe University Monograph Series in Social Science Research)

The main purpose of this book is to expose economics graduate students and researchers to the most significant development in international trade that has taken place in the recent past. Service transactions now make up a sizeable portion of global trade. Trade in both final and intermediate inputs is done virtually through information and communication networks, raising afresh the question of the basis of trade and calling for in-depth investigation. This book succinctly comes up with a relatively new explanation for the basis of trade, thus it adds a new dimension to three existing building blocks: technology, endowment, and returns to scale. Against a backdrop of standard Ricardian and Heckscher–Ohlin competitive models of trade, the chapters of this book nicely introduce the issue of communication cost and the difference in time zones between two trading nations. Then follow many intricate phenomena such as informality, skill formation, growth, wage inequality, and decisions regarding foreign direct investment (FDI). However, imperfectly competitive models are not dealt with in great detail as they deserve more space than can be allotted to them here. Given the nonexistence of any research-oriented in-depth analyses of competitive trade models with time-zone differences, this book is a valuable addition to the resources available to researchers and policymakers interested in deciphering recent developments in global trade patterns and the subsequent welfare effect. Preface Contents About the Authors List of Figures An Overview 1 Introduction Abstract 2 Trade and Time Zones—What We Know Abstract 2.1 Introduction 2.2 Theoretical Contribution 2.2.1 Communication Network and Fragmentation of Production 2.2.1.1 Role of Communication Network 2.2.1.2 Fragmentation of Production 2.2.2 Time Affecting Trade 2.2.2.1 Time Zones and Trade 2.2.2.2 Source of Trade and Comparative Advantage 2.2.2.3 Location of the Firm 2.2.2.4 Shift Working and Trade 2.2.2.5 Periodic Intra-Industry Trade 2.2.2.6 Effect on Factor Markets and Production 2.2.3 Time Zones and Growth 2.3 Empirical Contribution 2.3.1 Distance and Time Zones 2.3.2 Synchronization and Continuity Effect 2.3.3 Evolution of TZ Effect and Non-linearities 2.3.4 Some Variables Affecting TZ Effect 2.4 Conclusion References The Time and the Pattern of Trade 3 Time Zone Differences and Comparative Advantage in Ricardian Model Abstract 3.1 Introduction 3.2 Time-Difference and Comparative Advantage 3.2.1 Technology Transfer 3.2.2 Shipment Costs 3.3 General Equilibrium 3.4 Conclusion Appendix Pattern of Trade in General Equilibrium References 4 Time Zone Differences and Trade in Heckscher-Ohlin Setup Abstract 4.1 Introduction 4.2 The Basic Model 4.2.1 Effect of Time Zone Utilization 4.2.2 Effect on Factor Prices 4.2.3 Effect on Output 4.3 Extended Model with Distance 4.4 Conclusion Appendix 1 Appendix 2 Appendix 3 Appendix 4 Inclusion of Informal Sector Effect on Factor Prices Change in Output References 5 Time Zones and Trade in Monopolistic Competition Abstract 5.1 Introduction 5.2 Monopolistically Competitive Model and Trading Equilibrium 5.3 Conclusion References 6 Distance, Production, and Virtual Trade Abstract 6.1 Introduction 6.2 The Story and a Simple Model 6.3 Distance and Trade 6.4 Conclusion Appendix References Trade, Growth and Inequality 7 Time Zone Differences Induced Growth Abstract 7.1 Introduction 7.2 The Model and Analysis 7.3 The Impact of a Technological Advance in Communications Networks 7.4 Conclusions References 8 Separated TZ Induced Optimal Growth Through Virtual Trade Abstract 8.1 Introduction 8.2 Motivating Environment for the Model 8.3 Autarkic Equilibrium Without TZ Exploitation 8.4 Trade with TZ Exploitation and Growth 8.5 Growth with Labor Market Implications 8.6 Conclusion Appendix 1 Optimum Demand for {\varvec m}_{1} and {\varvec m}_{2} Appendix 2 Appendix 3 References 9 Virtual Labor Mobility and Its Distributional and Allocative Impacts Abstract 9.1 Introduction 9.2 Motivating Environment and the Basic Model 9.2.1 Utility Function and the Supply of Labor 9.2.2 Technology 9.2.3 Equilibrium Without Trade in Labor Services 9.3 Trade in Labor Services Between Identical Countries 9.4 Does Size Matter? 9.4.1 Equilibrium Conditions 9.4.2 Equilibrium Wage Rates 9.4.3 Impacts of Trade in Labor Services via Communication Networks 9.5 Conclusion Appendix Proof of the Second Claim Proof of the Third Claim Proof of the Seventh Claim Proof of the Eighth Claim Proof of the Ninth Claim Night-shift Wage Premium when the Size Difference is Small References 10 Time Zone Differences, Service Trade and Implications for Factor Prices Abstract 10.1 Introduction 10.2 The Environment and the Basic Model 10.2.1 Equilibrium Without Communication Network 10.3 Effect of Technological Advancement on Trade 10.3.1 Effect of Trade on Factor Returns 10.4 Wage Inequality Across the Globe 10.5 Conclusions References Firm Heterogeneity, FDI and Financial Capital 11 Time Zone Differences Induced Trade, Factor Prices and Skill Formation Abstract 11.1 Introduction 11.2 Motivating Environment and the Basic Model 11.3 Basic Results 11.3.1 TZ Exploitation and Effects on Factor Prices 11.3.2 TZ Exploitation and Educational Capital 11.3.3 Effect on Sectoral Composition 11.4 Conclusion Appendix 1: Adjustments in {{\varvec \uptau}} and E Appendix 2: Change in {{\varvec \uptau}} Appendix 3: Output Change Due to {{\varvec \uprho}} and E References 12 Time Zone Differences, Information Communication Technology, and Mobility of Financial Capital Abstract 12.1 Introduction 12.2 Environment and the Basic Model 12.3 Basic Results 12.3.1 TZ Exploitation for Partner Country 12.3.2 Production of Non-identical Product by the Trading Countries 12.4 Labor and Capital Endowments 12.4.1 Introduction of Labor in Both the Countries 12.4.2 Different Capital Endowments in Different Countries 12.5 Conclusion Appendix 1: Tabular Exposition of Day-Night Story Appendix 2: Capital Immobility Across TZs References 13 Role of FDI and Time Zone Differences in the Presence of Heterogeneous Firms Abstract 13.1 Introduction 13.2 The Model and Basic Results 13.3 Conclusion References Conclusion 14 Conclusion and the Road Ahead Abstract References