Time Zones and FDI with Heterogeneous Firms

Based on Helpman et al. (2004) we propose a simple two-country (Home and Foreign) model with heterogeneous firms to capture the role of FDI via utilizing time zone differences. Two countries are located in different time zones and there is no overlap in daily working hours. It will be shown that productivities of the firms undertaking FDI are higher than the productivities of non-FDI firms. Although the results look quite similar with Helpman et al. (2004), the direction of service trade flow is totally different: Foreign subsidiaries of high- productivity firms serve the Home market.