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Nash equilibrium tariffs and illegal immigration: an analysis of preferential trade liberalization

Author

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  • Subhayu Bandyopadhyay
  • Ryo Takashima

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.

Suggested Citation

  • Subhayu Bandyopadhyay & Ryo Takashima, 2007. "Nash equilibrium tariffs and illegal immigration: an analysis of preferential trade liberalization," Working Papers 2007-021, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2007-021
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    Keywords

    Trade; Immigrants;

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