Trade Policy and Illegal Immigration AD Woodland & C Yoshida … · 2016-07-21 · Trade Policy and...
Transcript of Trade Policy and Illegal Immigration AD Woodland & C Yoshida … · 2016-07-21 · Trade Policy and...
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
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
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 2 / 21
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)
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 3 / 21
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)
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 4 / 21
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
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 5 / 21
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 )
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 6 / 21
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 7 / 21
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)
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 8 / 21
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 .
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 9 / 21
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 10 / 21
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)
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 11 / 21
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
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 12 / 21
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
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 12 / 21
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?
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 13 / 21
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?
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 13 / 21
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 14 / 21
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 14 / 21
Tari¤ Reform by North
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
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 15 / 21
Tari¤ Reform by North
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 16 / 21
Tari¤ Reform by North
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 16 / 21
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 17 / 21
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 18 / 21
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 18 / 21
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 18 / 21
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 19 / 21
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 19 / 21
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 19 / 21
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.
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 20 / 21
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)
AD Woodland & C Yoshida (UNSW & RITS) Trade Policy and Illegal Immigration 12/09 21 / 21