Time zones arose out of necessity as fast travel along long distances (East-West) became more feasible. At first it only really mattered to companies and individuals who traveled in such a fashion and they came up with time zones as they saw fit.
Over time different zones over different countries merged and combined to form a world wide time zone system.
For the most part, local governments decide the time zones within their borders, and the lines are generally drawn to align with geographical and political boundaries, to be the obtrusive to the people that live within.
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