trade policy and illegal immigration ad woodland & c yoshida … · 2016-07-21 · trade policy...

Trade Policy and Illegal Immigration

AD Woodland & C Yoshida

UNSW & RITS

September 2008

AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 1 / 21

吉田千里

ノート注釈

This article is partly extracted from Woodland Alan D. and Chisato Yoshida, "Trade Policy and Illegal Immigration," in Kamihigashi Takashi and Laixun Zhao eds., International Trade and Economic Dynamics: Essays in Memory of Koji Shimomura, (Springer-Verlag, Heidelberg and New York), © 2008.

Introduction

Policy Background

PTAs:

Reduction or removal of tari¤ barrier to tradeNot much attention given to movement of labour

Legal immigration restricted

Illegal immigration prevalent

Policies to mimimize illegal immigration

Border patrolInternal surveillance


Approach

Research questions

How e¤ective is tari¤ reform in reducing illegal immigration?

Methodology

Paper is most closely related to

Gaytan-Fregoso and Lahiri (2001)


Literature

Early literature

Ethier (AER, 1986a, 1986b)border patrols and internal surveillance

Extensions

Bond and Chen (JIE, 1987), Bandyopadhyay and Bandyopadhyay(JDE, 1998), Djajic (JPopE, 1987, 1999), Gaytan-Fregoso and Lahiri(JDE, 2000) and Levine (JPopE, 1999)either assume away risk or assume risk-neutrality

Risk

Woodland and Yoshida (JDE, 2006)non-neutral risk preferences

Trade, tari¤s and illegal immigration

Gaytan-Fregoso and Lahiri (Routledge, 2001)Kahana and Lecker (EconGov, 2005)


This Paper

Features

Speci�es a model with two countries (+ROW)

Impose tari¤s on trade

Illegal immigration

Border patrol

Prospective illegal immigrants are expected utility maximizers

We examine e¤ect of

Tari¤ reforms (North, South and Both)

upon

Level of illegal immigration

Welfare


Framework and Notation

Countries: North, South and ROW

World prices: (1,π)

Speci�c tari¤s: T and t

Domestic prices: P = π + T and p = π + t

Expenditure functions: E (P,G ,U) North citizensee(P,G , eu) Illegal immigrantse(p, u) South residents

Revenue functions: R(P, L, I ) North

r(p, l) South

Labour supplies: Lθ = LG + LB

L = L� Lθ

l = l � IPublic good production: G (LG )


Border Protection and Equilibrium Illegal Immigration

Border detection probability: g(LB ) where g 0 > 0, g 00 < 0.

Immigration equilibrium condition

(1� g(LB )) eu + g(LB ) (u � k) = uRewrite as eu = u + hkwhere h = h(LB ) = g/(1� g) is the odds of detection.


Equilibrium Conditions

E (P,U) = Y ��R(P, L, I )� IRI (P, L, I ) + T 0M

�/ L (1)ee(P, eu) = ey � (1� α)RI (P, L, I ) (2)

e(p, u) = y ��r(p, l) + αIRI (P, L, I ) + t

0m�

/l (3)eu = u + hk, (4)

where h = g/(1� g),

P = π + T , p = π + t, L = L� LB � LG , l =_l � I

import vectors M and m are

M = LEP + IeeP � RP (5)

m = (_l � I )ep � rp (6)


Comparative Statics Equations

L(EU � T 0EPU )dU = ��IRII + T

0(RPI � eeP )� dI�(RL � IRIL � T 0RPL)dLB

+[T 0SPP + Iee 0P � IRIP ]dT + IT 0ee 0Pudeueeudeu = (1� α)RIIdI � (1� α)RILdLB � RI dα

+[(1� α)RIP � ee 0P ]dTl(eu � t 0epu)du =

�e � rl + α(RI + IRII ) + t

0(rpl � ep)�dI

�αIRILdLB + IRI dα

+t 0sppdt + αIRIPdT

deu = du + λdLB .


More Notation

The income e¤ects on consumption and Hatta conditions are

CY = EPU/EUecy = (eePu/eeu)cy = ePu/eubEU � EU (1� T 0CY ) > 0beu � eu(1� t 0cy ) > 0.


Comp. Stats Solution

The solution for the change in illegal immigration is

dI = �C�1IhCBdL

B + CAdα+ CT dT + Ctdti. (7)

where

CI = ee�1u (1� α)RII � l�1be�1u H (8)

CB = ��

λ+�ee�1u (1� α)� be�1u αIl�1

�RIL

(9)

CA = ��ee�1u + be�1u l�1I

RI < 0 (10)

CT = ee�1u [(1� α)RIP � ee 0P ]� be�1u αIl�1RIP (11)

Ct = �l�1be�1u t 0spp (12)

and Condition A (su¢ cient for Hicksian stability) is

H � e � rl + α(RI + IRII ) + t0(rpl � ep) > 0. (13)


Tari¤ Reform by South

Proposition 1: Assume that Condition A (H > 0) holds. Then, aunilateral proportional tari¤ reduction of the form dt = �tdκ, wheredκ > 0, by South reduces successful illegal immigration. The welfarelevel of illegal immigrants and residents of South increase equally. IfNorth is a free-trader, Northern citizens su¤er a loss in welfare.

Comp. stats:

dI = �C�1I Ctdt = C�1I l�1be�1u t 0sppdt

Proportional Reform

dt = �tdκ, where dκ > 0

ThendI/dκ = �C�1I l�1be�1u t 0sppt < 0


Welfare E¤ects of Reform by South

LbEUdU/dκ =�T 0(eeP � RPI )� IRII �1� T 0ecy (1� α)

�dI/dκeeudeu/dκ = (1� α)RIIdI/dκ

lbeudu/dκ = HdI/dκ � t 0spptdeu/dκ = du/dκ

North not a free trader?


Tari¤ Reform by North

Proposition 2: Assume that Condition A (H > 0) holds. Then, aunilateral proportional tari¤ reduction of the form dT = �Tdκ,where dκ > 0, by North reduces successful illegal immigration if (i)there are no remittances (α = 0) and (ii) [ee 0P � RIP ]T < 0.

Proposition 3: Assume that Condition A (H > 0) holds. Then, aunilateral proportional tari¤ reduction of the form dT = �Tdκ,where dκ > 0, by North reduces successful illegal immigration if[ee 0P � δRIP ]T < 0, whereδ = eeuγ = eeu f∂ev/∂ey(1� α)� ∂v/∂y (αI/l)g.



Proposition 2: Assume that Condition A (H > 0) holds. Then, aunilateral proportional tari¤ reduction of the form dT = �Tdκ,where dκ > 0, by North reduces successful illegal immigration if (i)there are no remittances (α = 0) and (ii) [ee 0P � RIP ]T < 0.Proposition 3: Assume that Condition A (H > 0) holds. Then, aunilateral proportional tari¤ reduction of the form dT = �Tdκ,where dκ > 0, by North reduces successful illegal immigration if[ee 0P � δRIP ]T < 0, whereδ = eeuγ = eeu f∂ev/∂ey(1� α)� ∂v/∂y (αI/l)g.



The e¤ect of a unilateral proportional tari¤ change by North:

dI/dκ = �C�1I�be�1u αIl�1RIP + ee�1u [ee 0P � (1� α)RIP ]

T

= �C�1I ee�1u [ee 0P � RIP ]T if α = 0 (no remittances)

= �C�1I ee�1u [ee 0P � δRIP ]T where

δ = eeuγ = eeu f∂ev/∂ey(1� α)� ∂v/∂y (αI/l)g



Proposition 4: Assume that Condition A (H > 0) holds, and that (i)there are no remittances (α = 0) and (ii) [ee 0P � RIP ]T < 0. Then, aunilateral proportional tari¤ reduction of the form dT = �Tdκ,where dκ > 0, by North reduces the welfare level of illegal immigrantsand residents of South equally. The e¤ect upon the welfare of Northcitizens is ambiguous.

Proposition 5: Assume that Condition A (H > 0) holds, and that (i)[ee 0P � δRIP ]T < 0 and (ii) RIPT > 0. Then, a unilateral proportionaltari¤ reduction of the form dT = �Tdκ, where dκ > 0, by Northreduces the welfare level of illegal immigrants and residents of Southequally. The e¤ect upon the welfare of North citizens is ambiguous.


Tari¤ Reform by North - Welfare E¤ects

The welfare e¤ects of the reform dT = �Tdκ, where dκ > 0, are asfollows:

LbEUdU/dκ =�T 0(eeP � RPI ) + IT 0ecy (1� α)RII � IRII

�dI/dκ

�[T 0SPP + IT 0ecy (1� α)RIP+I (1� T 0ecy )ee 0P � T 0RPI ]Teeudeu/dκ = (1� α)RIIdI/dκ + [ee 0P � (1� α)RIP ]T

lbeudu/dκ = HdI/dκ � αIRIPT

deu/dκ = du/dκ.


Bilateral Tari¤ Reform

Proposition 6: Assume that Condition A (H > 0) holds, and that[ee 0P � δRIP ]T < 0. Then, a bilateral proportional tari¤ reduction ofthe form dT = �Tdκ and dt = �tdκ, where dκ > 0, by South andNorth reduces successful illegal immigration.

Comparative statics:

dI/dκ = C�1I (Ct t + CTT )

= �C�1I [l�1be�1u t 0sppt + Tbe�1u αIl�1RIP+ee�1u [ee 0P � (1� α)RIP ]g]

= �C�1I�l�1be�1u t 0sppt + ee�1u [ee 0P � δRIP ]T

�.

A su¢ cient condition (in addition to Condition A) for the outcomedI/dκ < 0 is that [ee 0P � δRIP ]T < 0

- which becomes [ee 0P � RIP ]T < 0 if α = 0.


Bilateral Tari¤ Reform Welfare E¤ects

Proposition 7: Assume that Condition A (H > 0) holds, and that[ee 0P � δRIP ]T < 0.Then, a bilateral proportional tari¤ reduction ofthe form dT = �Tdκ and dt = �tdκ, where dκ > 0, by South andNorth e¤ects the welfare level of illegal immigrants and residents ofSouth equally, but with ambiguous sign. The e¤ect upon the welfareof North citizens is also ambiguous.

Contrast with Gaytan-Fregoso and Lahiri (2001):They get (i) dI/dκ < 0 if [ee 0P � RIP ]T < 0 and some matrix is pd

(ii) North gains if [ee 0P � RIP ]T < 0, some matrix is nd andsome other conditions

We get the condition [ee 0P � RIP ]T < 0 if α = 0.


Bilateral Tari¤ Reform

The welfare e¤ects of the bilateral reform dT = �Tdκ and dt = �tdκ,where dκ > 0, are:

LbEUdU/dκ =�IT 0ecy (1� α)RII + T

0(eeP � RPI )� IRII � dI/dκ

�[T 0SPP + IT 0ecy (1� α)RIP � I (1� T 0ecy )ee 0P � T 0RIP ]Teeudeu/dκ = (1� α)RIIdI/dκ + T 0[eeP � (1� α)RPI ]

lbeudu/dκ = HdI/dκ � t 0sppt � αIRIPT

deu/dκ = du/dκ.


Concluding Remarks

Summary

We have examined

several tari¤ reformse¤ects on illegal immigration and welfare

Results are clearer when

there are no remittancesthere is free trade

Tari¤s and remittance create complications

especially for welfare of North

Role of prospective illegal immigrant behaviour

Contrast with results of Gaytan-Fregoso and Lahiri (2001)


trade policy and illegal immigration ad woodland & c yoshida … · 2016-07-21 · trade policy...

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