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Import Tariffs and Illegal Immigration: A Strategic Analysis

Author

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  • Subhayu Bandyopadhyay
  • Santiago Pinto

Abstract

We examine the effects of tariffs in a two-country specific-factors model with endogenous illegal immigration. While tariffs generate the usual terms-of-trade gains in goods markets for the host country, they also raise wages and attract additional illegal immigration. Increased immigration-related costs and higher wage costs of hiring immigrants may reduce the welfare of citizens of the host country. We also show that within the context of our two-nation framework, free trade need not maximize joint welfare when illegal immigration and certain immigration-related costs are present. Finally, we analyze a sequential game in which the host nation announces a contingent tariff schedule to induce the source nation to adopt emigration-deterring border enforcement. Under a credible commitment mechanism, the host nation can achieve a free-trade equilibrium with lower illegal immigration and higher welfare compared with the baseline equilibrium without contingent tariffs.

Suggested Citation

  • Subhayu Bandyopadhyay & Santiago Pinto, 2026. "Import Tariffs and Illegal Immigration: A Strategic Analysis," Review, Federal Reserve Bank of St. Louis, vol. 108(7), pages 1-12, June.
    • Handle: RePEc:fip:fedlrv:103433
    DOI: 10.20955/r.2026.07
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    JEL classification:

    • F1 - International Economics - - Trade
    • F2 - International Economics - - International Factor Movements and International Business

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