Discussion Paper

No. 2014-14 | April 02, 2014
Distance, Production, Trade and Growth—A Note
(Published in Special Issue Distance and Border Effects in Economics)

Abstract

This short note tries to argue that distance is not necessarily harmful for trade. It is shown that there may be an increase in the production and volume of trade if time zones of the trading nations are non-overlapping. This implies a positive effect of distance on the volume of trade. It is also shown that exploitation of time zone difference raises welfare and ensures capital accumulation. The note builds on the emerging literature on time zones and pure theory of international trade.

JEL Classification

F1

Cite As

Biswajit Mandal (2014). Distance, Production, Trade and Growth—A Note. Economics Discussion Papers, No 2014-14, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2014-14

Assessment



Comments and Questions


Abdul waheed - comment
April 03, 2014 - 11:40

very interesting


Anonymous - Reply
April 05, 2014 - 02:17

Thanks.


Anonymous - Reader comment
April 04, 2014 - 08:27

The assessment is as follows.

1. the basic point about gains from cross-time-zone trade is right, though previously made by Marjit and others.
2. The basic model could be cleaned up a bit because it inserts capital in the production function but removes it from the cost function ...[more]

... by assuming that its rental rate is equal to zero.
3. The zero price of capital makes the attempt to move from static trade theory to capital accumulation quite dubious. If growth is to be treated seriously, the static model should incorporate a positive price of capital.
4. The paper does not sufficiently stress in various places that it applies to what it calls ‘virtual’ trade exemplified by a special type of services trade such as call centers and the like. This could mislead casual readers.
5. Looking to future implications, the gains from virtual trade being larger for partners far enough away to have disjoint working days suggests a new dimension to efficient free trade areas. The existing ideas about FTA formation are based on trade costs increasing in distance. Thus proximity is associated with greater likelihood of trade creation exceeding trade diversion, a presumption from theory that jibes with the geography of most actual FTAs. The rise of services trade, and thus of potential gains from cross-time-zone trade, suggest a contrary force is rising in importance. Related to this, the relative desirability of FTAs vs. full multilateral agreements is probably modified.


Anonymous - Reply
April 05, 2014 - 02:21

Thanks for your comments. I shall try to look at the points you mentioned. Since I had an intention to prepare an elegant "note', in some cases/places I made some simplifications. Thanks again.


Anonymous - Referee report 1
July 10, 2014 - 08:39

see attached file


Anonymous - Referee report 2
July 10, 2014 - 08:42

see attached file