Illegal Immigration with Tariff Distortions

DOIhttp://doi.org/10.1177/00157325221119019
Published date01 February 2023
Date01 February 2023
Subject MatterArticles
Illegal Immigration with
Tariff Distortions
Alan Woodland1 and Chisato Yoshida2
Abstract
We construct and analyse a two-country general equilibrium model in which
the home and foreign countries trade two final goods, and legal immigration is
restricted. International trade is distorted via tariffs imposed by both countries.
Foreign migrants attempt illegal entry to the home country but face a probability
of detection and arrest by border patrol of the home country. We examine how
stricter border patrol affects the level of illegal immigration, establish conditions
under which stricter border patrol reduces successful illegal immigration and
determine the welfare implications of this policy change. We also determine the
effects on illegal immigration and the welfare of all agents when illegal immigrants
increase remittances back to the source country.
JEL Codes: F13, F16, F22.
Keywords
Illegal immigration, tariff distortions, border patrol, remittances
Introduction
The European Union (EU) is composed of 27 independent sovereign nations,
which are known as member states.1 The EU forms a single market within which
there is free circulation of goods, services, information, capital and labour. It is
well known that members cooperate on many policy fronts. Karacaovali and
Article
Foreign Trade Review
58(1) 121–143, 2023
© 2022 Indian Institute of
Foreign Trade
Reprints and permissions:
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DOI: 10.1177/00157325221119019
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1 School of Economics and CEPAR, University of New South Wales, Sydney, Australia.
2 Independent researcher, formerly Faculty of Economics, Ritsumeikan University, Shiga, Japan.
Corresponding author:
Alan Woodland, School of Economics and CEPAR, University of New South Wales, Sydney, Australia.
E-mail: a.woodland@unsw.edu.au
122 Foreign Trade Review 58(1)
Limao (2008) note that ‘There is also a very strong element of cooperation
between members in non-trade policies, particularly in issues with regional spillo-
ver such as immigration, environment, development of poorer regions, foreign
policy, and judicial matters.’ In addition, the EU attracts large numbers of illegal
immigrants. For example, Broeders (2007) argued that ‘In EU policy documents,
figures of an annual inflow of 400,000–500,000 and an EU “stock” of around
three million irregular migrants are often noted, but exact numbers are unknown.’
Irregular or illegal immigration is a topic central to this paper.
Considering the characteristics mentioned above in the EU as a customs union,
it is arguable that a common tariff in the EU causes a decrease in imports from
outside the EU, and hence a rise in illegal immigration mainly from the
Mediterranean regions, if we suppose trade in commodities and factor mobility
are substitutes, invoking Mundell (1957).2 Therefore, given the common tariff-
distorted trade in the EU, trade and illegal immigration among trade partners
could be substitutes. In other words, provided that there is a large income gap
between the EU and the Mediterranean countries, the common tariff would have
prevented the difference in income from shrinking, thus contributing to illegal
immigration between the two regions.
These observations about the EU provide a backdrop and some motivation for
an analysis of illegal immigration between countries that undertake trade in com-
modities distorted by import tariffs. Accordingly, we introduce a two-country
model of trade in goods and include the possibility of illegal immigration.
Specifically, we formulate a model of tariff-distorted trade in many goods between
two small countries (North and South) and allow the possibility of illegal immi-
gration from South to North. Supposing that North has production technologies
superior to South, that legal migration is not permitted, and that the two countries
impose bilateral tariffs, there will be factor-price inequalities between the coun-
tries. In this context, North is confronted with the possibility of illegal immigrants
passing through the border between North and South without being detected.3
Importantly, we follow Woodland and Yoshida (2006) in assuming that potential
illegal immigrants understand that there is a risk of detection by North’s border
control and behave accordingly by maximising expected utility.
We then examine how tighter border patrol by the host country (North) affects
the equilibrium number of illegal immigrants from a source country (South) and
also examine the welfare effects on legal citizens of North, North’s illegal immi-
grants and the remaining residents of South. As mentioned in Wong (1986),
migrating workers would generally remit a portion of their earnings to the source
country of illegal immigration. Accordingly, we also examine the effects on the
level of illegal migration and welfare of an increase in the level of remittances
returned to South residents by successful illegal migrant workers.
Related Literature
Our paper is related to several strands of the literature on illegal immigration.
Ethier (1986a) and Ethier (1986b) introduced a one-small-country model of

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