Nash Equilibrium Tariffs and Illegal Immigration: An Analysis of Preferential Trade Liberalization

Abstract

We use a version of the small-union Meade model to consider the effects of interdependent import tariffs in the presence illegal immigration. First, we analyze the condition under which illegal immigration is likely to increase (or decrease) in response to reciprocal trade liberalization between the source and host nations (of illegal immigration). Next we describe the Nash equilibrium in tariffs between these nations and discus how a liberalization of tariffs starting from this Nash equilibrium is likely to affect their utility. Finally, we consider the effect of the host nation's liberalization of the import tariff (imposed on its imports from a third nation). We show that strategic considerations regarding the effect of this tariff liberalization on the Nash equilibrium tariffs can modify the traditional (trade creating/diverting) gains from such liberalization.

Illegal Immigration with Tariff Distortions

“…Bandyopadhyay and Bandyopadhyay (1998) analyses the supply-side determinants of illegal immigration using a three-sector general equilibrium model of the source country, while Gaytan-Fregoso and Lahiri (2000) analyse foreign aid. The impacts on illegal migration and the effectiveness of enforcement policies of international trade policies concerning tariffs have been previously undertaken by Woodland and Yoshida (2009), Bandyopadhyay (2006) and Bandyopadhyay and Takashima (2007).…”

Three essays on trade policy and factor mobility

“…Bandyopadhyay's (2001) focus is on second best tariffs and quite different from the issues addressed here.8 AsEthier(1986) points out that the firms cannot distinguish between legal and illegal immigrants or the distinction does not have any implications.…”