Optimal Tariffs with Smuggling: A Spatial Analysis of Nigerian Rice Policy Options

32 Pages Posted: 5 Mar 2016

See all articles by Michael Johnson

Michael Johnson

International Food Policy Research Institute (IFPRI)

Paul Dorosh

International Food Policy Research Institute (IFPRI)

Date Written: December 25, 2015

Abstract

Utilizing a spatial multi-market model for rice in Nigeria that explicitly takes into account the potential for smuggling, in this paper we analyze the welfare implications of alternative rice tariff rates given the government’s goals of spurring domestic production and reducing imports. Because smuggling occurs through the diversion of imports from Lagos, the official port of entry in the south, to the north, our modeling framework also captures the spatial effects of higher tariffs on changes in rural and urban prices, production and consumption, the flow of trade in rice, and welfare across different parts of the country. Results show that tariff rates that exceed about 40 percent introduce some smuggling of rice through the north when smuggling becomes more profitable than importing through official channels in the south. It is also at this tipping point that government tariff revenues are maximized. At higher tariff rates with smuggling, the south experiences greater welfare losses, especially in urban areas.

Keywords: Nigeria; west Africa; Africa south of Sahara; Africa; tariffs; rice; trade; trade barriers; spatial market equilibrium model; smuggling

Suggested Citation

Johnson, Michael and Dorosh, Paul, Optimal Tariffs with Smuggling: A Spatial Analysis of Nigerian Rice Policy Options (December 25, 2015). IFPRI Discussion Paper 1493, Available at SSRN: https://ssrn.com/abstract=2741910 or http://dx.doi.org/10.2139/ssrn.2741910

Michael Johnson (Contact Author)

International Food Policy Research Institute (IFPRI) ( email )

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Paul Dorosh

International Food Policy Research Institute (IFPRI) ( email )

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Washington, DC 20005
United States
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