Abstract:
This paper establishes an interesting link between informality and time zone differ ences in a general equilibrium trade model for small open economy. Trading countries
are located in different time zones of the world with non-overlapping working hours.
Such differences in timing can be utilized in the production of services, and commu nication technology is an important factor that helps this trading process. In such a
setup due to a reduction in communication cost, both skilled and unskilled workers
are benefitted, skilled labour using service sector and formal unskilled sector expand.
Interestingly, wage inequality between skilled and unskilled workers is widened under
reasonable conditions. Another phenomenon that must draw our attention is the con traction of informality due to such changes. Then we extend the basic model to include
capital mobility across all sectors and unionized wage in the formal sector. We find
that the reduction in communication cost leads to finite change in the structure of
production and one of the four sectors of the system vanishes. Subsequently, informal
sector contracts while wage disparity is widened
