Time zone difference, skill formation and corrupt informal sector: the role of virtual trade
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This paper uses competitive general equilibrium model of trade for small open economy with informal sector to check the possible effects of virtual trade. We show that skilled labors and educational capital owners benefit from virtual trade. The service sector expands while the formal and informal sector contract along with the number of people engaged in corruption-related intermediation. Following this, we also check the effect of a fall in the extent of cost of corruption. Results show an increase in unskilled wage and outflow of educational capital thus hurting the skill-intensive sector. We proceed further to club the effects of both virtual trade and fall in intermediation cost, and explore the consequences. Though, both skilled and unskilled labors benefit, the effect on output and intermediators, however, is ambiguous. We then modify the basic model to endogenize the cost of corruption, include punishment aspect of intermediators, etc. In this case, owing to time zone difference exploitation, we experience an increase in wage of both types of labor, an expansion of the service sector and contraction of the informal sector. Interestingly, the cost of intermediation rises while the number of intermediators falls in the extended model.
KeywordsTime zones Virtual trade Service Educational capital Informality Corruption Extortion
JEL ClassificationF16 F2 D73 E26 O17 L86
We thank Sugata Marjit, Sarbajit Sengupta, Saibal Kar, Priya Brata Dutta for their observations on an earlier version of the paper. The paper has also benefited from the comments received from conference in the University of Calcutta, and Visva-Bharati University. We also gratefully acknowledge the comments and suggestions given by the editor of this journal and the anonymous referee. These comments helped us to refine the arguments of the paper. This paper is based on a chapter of the Ph.D. thesis of the first author. Usual disclaimer applies.
Compliance with ethical standards
On behalf of all authors, the corresponding author states that there is no conflict of interest.
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