International service transactions: Is time a trade barrier in a connected world?

The firms' international fragmentation of production has recently widened its focus from outsourcing of intermediates to off-shoring of business services such as software program development and international call centre networks. Although a large number of business services are intangible and non-storable, gravity model estimates show that geographical distance between business partners is still relevant even when information and communication technologies (ICT) provide alternatives for face-to-face interaction. It has recently been argued that time zones can be a driving force of international service transactions by allowing for continuously operating over a 24 hours business day. In this paper, we find empirical evidence for the continuity effect in trade of business and commercial services which is even higher for trade with Non-OECD countries and robust to measurement and sample size. We show that the time zone effect in trading business services is dependent on the level of ICT infrastructure.