EFFECT OF SMUGGLING ON WELFARE AND OPTIMAL TARIFF RATE

8/11/2019 EFFECT OF SMUGGLING ON WELFARE AND OPTIMAL TARIFF RATE

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EFFECT OF SMUGGLING ON

WELFARE AND OPTIMAL TARIFRAT

Obedur Rashid Bin Sakra !ad"#kaderi$%&'ai()*


2/15

ContentsIntroduction))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))) -

Types of Smuggling)))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))).

Literature Review)))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))/

Optimal Tari to Reduce Social Cost by Smuggling))))))))))))))))))))))))))))))))

Bangladesh India Illegal Trade ! real "ndings#)))))))))))))))))))))))))))))))))))$$

Conclusion))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))$1

Bibliography)))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))))) $.

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Introduction

S'u&&(in& is a &(+ba( #hen+'en+n) M+s +2 he de3e(+#in& *+unries

are 2a*in& he #r+b(e' +2 i((e&a( rade) A2er 4a&dish N) Bha&5ai and

Ben 6ansen ana(7i*a( #a#er +n s'u&&(in& +her sar + 5+rk +n hee*+n+'i* ana(7sis +2 s'u&&(in&) Their 8ndin&s are di9erin& 2r+' +ne

an+her as be*ause he7 ried + see he *+n*e# +2 s'u&&(in& 2r+'

di9eren an&(e)

I is eas7 + undersandab(e 2+r a #ers+n ha hi&h rade barriers are

he 'ain issue 5hi*h indu*in& raders + rade i((e&a((7) There are a(s+

'an7 +her reas+n 5hi*h are a(s+ &i3in& +##+runi7 + raders +

rade i((e&a((7) In '+s +2 he de3e(+#in& *+unries he in2rasru*ure

su##+rin& 2+r'a( rade is 5eak and *+ss +2 radin& in*rease 5ih

subsania((7 5ih hi&her 3+(u'es: s+'e +2 i 'a7 s#i(( +3er in+

in2+r'a( radin&)

Tari9 and ;u+a is he usua( 5a7 + i'#+se rade barriers) WTO is

r7in& + (ibera(i


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+**ur besides (e&a( rade be*ause +2 he #++r in2rasru*ure +2 bankin&

and +her s7se')

C(ear(7: h+u&h: s'u&&(in& under'ines #+(ii*a( and (e&a( #r+*esses) I

*+rru#s and de'+ra(i


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Types of Smuggling

The n+i+n +2 s'u&&(in&= *+n@ures u# i'a&es +2 s'u&&(ers (airs and

s'a(( b+as sea(hi(7 in he ni&h) The di*i+nar7 de8nes s'u&&(in& as

*(andesine(7 i'#+rin& duiab(e &++ds 5ih+u #a7in& he *us+'s=)

The 'eh+ds +r 7#es +2 s'u&&(in& 3ar7 he risk ness and he *+s

in*(udin& d+in& i) A**+rdin& + Ri*hard N) C++#er: here are 2+ur 7#es

+2 s'u&&(in& +r 'eh+ds +2 e3asi+n +2 i'#+r duies)

S+'e s'u&&(in& +**urs: be*ause *us+'s +*ia( 'a7 n+ re*+rd he

i'#+rs) This *an arise eiher be*ause he7 are (anded +uside he

+*ia( #+rs +2 enr7: +r be*ause he7 are '+3ed *+3er(7 5ih +r

5ih+u he *+'#(i*i7 +2 *us+'s +*ia(s hr+u&h he +*ia( #+rs +2

enr7)

Fa(se(7 de*(ared 3a(ue +2 i'#+rs a(s+ is +ne kind +2 s'u&&(in&) When

ari9s are hi&h: here is an in*eni3e + underHin3+i*e i'#+rs s+ as +

redu*e heir duiab(e 3a(ue) S+'ei'es &++ds 'a7 *+'e hr+u&h he

*us+'s #+s bu 2a(se(7 de*(ared 5ih re&ard + heir naure

Au+'+bi(es as s*ra#J) This 7#e +2 s'u&&(in& *an be *a((ed as

'is*(assi8*ai+n) In his re&i+n '+s +2 he i'e &++ds 'a7 *+'e

hr+u&h he *us+'s #+s #r+#er(7 de*(ared: bu he duies a*ua((7

assessed are be(+5 h+se ha are (e&a((7 a##(i*ab(e) This 7#e *an be*a((ed as underHassess'en)

Whae3er he s'u&&(in& 7#es is: here is risk and s+*ia( *+s in3+(3ed

5ih s'u&&(in&) M+re +r (ess 2+r e3er7 *ae&+r7 he risk ness and s+*ia(

*+s are sa'e) The 'ain di9eren*es are he 'eh+d +2 d+in& i: he

.


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i'#+rer and he &++ds) S'a(( 3+(u'e &++ds are s'u&&(ed b7 he 8rs

'eh+ds and (ar&e 3+(u'e &++ds *+'e hr+u&h he (e&a( #+r)

Literature Review

A*ua((7 '+s +2 he (ieraure +n s'u&&(in& is base +n he #a#er +2

4a&dish Bha&5ai and Ben 6ansen A The+rei*a( Ana(7sis +2

S'u&&(in&) In ha #a#er he7 assu'e ha s'u&&(in& is eiher

*+'#eii3e +r '+n+#+(isi* and ha he s'u&&(in& +9er *ur3e is

eiher a *+nsan rae +2 rans2+r'ai+n +r an in*reasin& rae +2

rans2+r'ai+n) The7 a(s+ assu'e ha he s'u&&(in& #r+8 under

*+'#eii+n 5+u(d be


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5+u(d a(s+ ha3e a((+*ai3e *+ss ha ha *+u(d 5e(( e?*eed an7 &ain

2r+' s'u&&(in&)

The '+de( +2 B6 is &i3en be(+5 + undersand he 2urher 8ndin&s)

Wih 2ree rade: #r+du*i+n #+ssibi(i7 *ur3e AB: and &i3en inernai+na( #ri*e (ine P 2 C2: he

5e(2are 'a?i'u'J is a U2) Wih ari9: he #r+du*i+n: *+nsu'#i+n: and 5e(2are a P C and U:

res#e*i3e(7: #r+3ided ha n+ s'u&&(in& ake #(a*e) Wih s'u&&(in&: a *+nsan #ri*e (ine

rans2+r'ai+n (ineJ Ps Cs : (ess see# han he an&en + AB a P : (e&a( rade *eases and

5e(2are ends u# a UsKU) 6en*e: s'u&&(in& redu*es 5e(2are)

S+ur*e) Bha&5ai and 6ansen: #)$


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A**+rdin& + he '+de( (e&a( rade is e(i'inaed 5hen s'u&&(in& akes

#(a*e be*ause he *+s +2 (e&a( i'#+rs: under he ari9 J + he

*+nsu'er: e?*eeds he *+s +2 i((e&a( i'#+rs e3en 5hen he

s'u&&(in& sur*har&e sJ is i'#+sed)

The (en&h +2 PC: *ru*ia( in he B6 ana(7sis +2 he 5e(2are e9e*s +2

s'u&&(in&: 5i(( de#end u#+n he de&ree +2 subsiuabi(i7 +2

i'#+rab(e 2+r e?#+rab(e in #r+du*i+n and +2 e?#+rab(e 2+r

i'#+rab(e in *+nsu'#i+n) The s'a((er are hese 5+ subsiuabi(i7:

he (ess e(asi* + he ari9 5i(( be he de'and 2+r i'#+rs and he

s'a((er 5i(( be he e9e* +2 an7 &i3en ari9 +n he #aers +2 #r+du*i+n

and *+nsu'#i+n"Gra7 and Wa(er: $/,

In $$: Marie Thursb7: Ri*hard 4ens+n and 4err7 Thursb7 #ub(ished a

#a#er in The Quarterly Journal of Economics, in 5hi*h @+urna( B6 a(s+

#ub(ished heir #a#er) The 'ain 8ndin& +2 he #a#er is he #ri*e

dis#ari7 d+'esi* #ri*e +2 i'#+rs (+5er han he ari9 in*(usi3e 5+r(d

#ri*eJ *+nr+( he #r+8) In B6 '+de( an+her sh+r *+'in&s is : he7

did n+ &i3e in*(ude a 8r' 5hi*h *an i'#+rs (e&a((7 s+'e #+ri+n and

s'u&&(e s+'e #+ri+n +2 i=s +a( i'#+rs)

The '+de( ana(7sis sars 5ih 8r' #r+8 'a?i'i


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Fi&ure Pri*e Dis#ari7 S+ur*e S'u&&(in&: Ca'+ua&in&: and Marke

sru*ure: $$J

An+her 8ndin& +2 he '+de( used b7 MR4 is he en2+r*e'en a*i3iies

e9e*s +n 5e(2are) The7 2+und ha an in*rease in he (e3e( +2en2+r*e'en e?*ess s'u&&(in& *+s +2 a *a'+ua&erJ redu*es 5e(2are

i2 he e;ui(ibriu' 2ra*i+n s'u&&(ed b7 a *a'+ua&er is ine(asi* 5ih

res#e* + he (e3e( +2 en2+r*e'en e?*ess s'u&&(in& *+sJ) An

in*rease in he (e3e( +2 en2+r*e'en *auses ea*h *a'+ua&er +

redu*e i'#+rs sin*e is e?#e*ed 'ar&ina( re3enue shi2s d+5n and is

'ar&ina( *+s shi2s u#) This raises #ri*e and (eads (e&a( raders +

e?#and i'#+rs: bu he ne e9e* is 2e5er +a( i'#+rs: (ess

s'u&&(in& and hi&her #ri*e) We(2are is redu*ed un(ess he resu(in&

(+ss in *+nsu'er sur#(us is +9se b7 a redu*i+n in +a( e?*ess

s'u&&(in& *+s) "Thursb7: $$,

M+s +2 he #a#er based +n hese 5+ '+de(s: Brun+ Larue and 6ar3e7

E) Lu#an did a #a#er in -00$: based +n he de'and side ana(7sis) Bu

+ne hin& '+s +2 he #a#er 'ake a 'isake is ha n+5 in he

&(+ba(i


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Optimal Tari to Reduce Social Cost by Smuggling

I is +b3i+us ha de3e(+#in& *+unries (ike Ban&(adesh *an= redu*e

ari9 + 0 in near 2uure) I is n+ be*ause + #r+e* in2an indusr7 +2

Ban&(adesh bu a(s+ 2+r re3enue &enerai+n b7 ari9 is hi&h here raher

han dire* a?) On he +her hand en2+r*e'en a*i3iies *an= be

redu*ed raher i has + in*rease as be*ause +2 Ban&(adesh is in he

inernai+na( dru& s'u&&(in& r+ue) I2 Ban&(adesh redu*es he

en2+r*e'en a*i3iies i 5i(( be*+'e a hea3en 2+r dru& dea(er)

The sa'e #r+b(e' is 2a*in& 'an7 +her de3e(+#in& nai+ns a(s+) S+ i

is n+5 &(+ba( issue + redu*e s'u&&(in& and + in*rease rade 5ih

usin& a barrier s7se' raher 2reein& i) And 2+r his reas+n an +#i'a(

ari9 rae is ne*essar7 + 8nd +u 2+r a &i3en #r+du*)

I a' shrinkin& '7 '+de( 2+r +n(7 2+r h+se &++ds 5hi*h are n+ har'2u(

(ike dru&s) As in he #re3i+us se*i+n '+s +2 he '+de( 8nds +u he

re(ai+n be5een 5e(2are 5ih s'u&&(in& and s'u&&(in& 5ih ari9

s7se') S+ 5e *an '+de( ari9 in er's +2 s'u&&(in&: 5e(2are and

+her 2a*+rs)

G+3ern'en use ari9 + redu*e de8*i +2 ba(an*e +2 #a7'en and a(s+

2+r re3enue &enerain& #r+*ess) S+ 5e *an in*(ude &+3ern'en

re3enue as inde#enden 3ariab(es) And 2+r his reas+n +#i'a( ari9

*an be a 2un*i+n +2 a(( he 2a*+rs) The 2un*i+n 5i(( (++k (ike:


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t$%ts& w& g& m#

6ere is he +#i'a( ari9 rae 5hi*h is a 2un*i+n +2 s'u&&(in& s:

5e(2are +2 he s+*ie7 5: &+3ern'en re3enue & and 'is*e((ane+us

2a*+rs ')

't('s)*&

't('w)*&

't('g+*& and

't('m,*

The re(ai+n in be5een ari9 and s'u&&(in& and 5e(2are 5i(( be

ne&ai3e: and he &+3ern'en re3enue 5i(( be #+sii3e) I 'eans i2

s'u&&(in& in*rease hen &+3ern'en sh+u(d (+5er he ari9 rae +

redu*e s'u&&(in& and a(s+ + in*rease he 5e(2are +r *+nsu'er sur#(us

&+3ern'en sh+u(d use a (+5er ari9 rae)

F+r e'#iri*a( ana(7sis 5e(2are 5i(( be 'easured as he *+nsu'er

sur#(us (+ss: and s'u&&(in& 5i(( be 'easured as he a'+un +2 i((e&a((7

i'#+red ;uani7 +2 he &++ds) in he 'is*e((ane+us 3ariab(es : 5+r(d

#ri*e : 'arke sru*ure *an be in*(uded) M7 8ndin&s 'a7 di9er

a**+rdin& + d+'esi* 'arke sru*ure) F+r si'#(i*i7 I assu'e ha

d+'esi* 'arke is #er2e*(7 *+'#eii3e +r '+n+#+(isi*: +r - 8r'=s

du+#+(7) I 5i(( r7 + 8nd +u +#i'a( ari9 rae +n he basis +2 '7

3ariab(es and 'arke)

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Bangladesh India Illegal Trade ! real "ndings#

Ban&(adesh India=s i((e&a( radin& insiui+n has a &rea ad3ana&e

+3er (e&a( insiui+n) The *+s +2 radin& is (+5er in he i((e&a(

insiui+n) There is a n+i+n ha a rai+na( beha3i+r 5+u(d i'#(7 ha a

'+re e*ien insiui+n in er's +2 (+5er *+ssJ sh+u(d be #re2erred

+3er (ess e*ien +ne C+ase $0J) S+ i 'akes he sae'en 3a(id

ha in2+r'a( rade in India and Ban&(adesh 5i(( be ha##en beside2+r'a( rade)

In he be(+5 ab(e +2 radin& a*i3iies: 5e *an see a +3era(( radin&

#aern +2 Ban&(adesh 5ih India)

Category of Trader Respondents in

Bangladesh

Respondent s in India

Informal -ormal Informal -ormalE?#+rer / /0 /0I'#+rer /0 .

D+'esi* 'arke -1 1 . $F+r'a( H 1 H

In2+r'a( H H H HT+a( res#+ndens /0 /0 /0 /0

S+ur*e India=s In2+r'a( rade 5ih Ban&(adesh A ua(iai3e Assess'en

$$


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In his ab(e i is *(ear ha +n(7 $.J +2 he in2+r'a( Ban&(adeshi

raders raded hr+u&h b+h *hanne(s) S+ 5e *an assu'e ha nu'ber

+2 8r's is (ess 5hi*h is n+ i'#+rin& s+'e #+ri+n +2 his &++ds usin&

in2+r'a( *hanne()

An+her &rea 8ndin&s in his re&i+n is he risk in3+(3ed 5ih in2+r'a(

radin& is n+ ha 'u*h si&ni8*an) The 3ia( as#e*s here are e?en

+2 risk ' risk sharin& arran&e'ens and 'e*hanis's +2 risk (essenin&

ha are #re3a(en a'+n& radin& #arners radin& in2+r'a((7)

In he sur3e7 d+ne b7 Sna@ib P+hi and Nisha ane@a sh+5s he riskness

in3+(3e in in2+r'a( radin& )The ab(e is &i3en be(+5

Ris. !ttributes In Bangladesh In IndiaG++ds n+ *+n2+r'in& +

s#e*i8*ai+n

..ne3erJ

In*iden*e +2 de2au( in

de(i3er7 +2 &++ds

0rare(7J

In*iden*e +2 de(a7 in

de(i3er7 +2 &++ds

/-rare(7J -rare(7J

De2au( in #a7'en /-ne3erJIn*iden*e +2 &++ds (+s

due + sei


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se#s su*h as i'#+rs (i*enses: (eer +2 *redi auh+ri as a resu( he e9e*

+2 5e(2are 2+r s'u&&(in& is be*+'e a'bi&u+us) I is *ru*ia( + 8nd a

+#i'a( ari9 rae + redu*e s'u&&(in&: be*ause +2 he s+*ia( *+s is

be*+'in& hu&e as s'u&&(in& in*reasin& he *+rru#i+n and *ri'ina(

a*i3iies in a s+*ie7)

$1


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EFFECT OF SMUGGLING ON WELFARE AND OPTIMAL TARIFF RATE

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