Every year, thousands of refugees are forced to leave their countries of origin and are hosted by their neighboring countries. However, very little is known about the impact of these refugees on the local economy and its inhabitants. Based on a hypothesis formulated during a two-month iterative field research, a theoretical framework is used to understand how the refugee inflow would affect the good and labour markets of the local economy. We then test the theoretical predictions regarding the potential winners and losers among the refugee-hosting population, using household panel data collected in the region of Kagera in Tanzania. Our identification strategy exploits both time and spatial variations in the way households traced between 1991 and 2004 have been affected by the refugee inflows originating from Burundi (1993) and Rwanda (1994). Our results show that local hosts do not necessarily suffer from the refugee presence. Net economic benefits could even emerge provided a sufficient mass of refugees is gathered. Furthermore, the economic benefits appear to be unevenly distributed among the refugee- hosting population. Agricultural workers are likely to suffer the most from an increase in competition on the labor markets and the surging prices of several goods. On the contrary, non-agricultural workers and self-employed farmers are in a better position to benefit from such a refugee inflow. We also conjecture that the welfare deterioration experienced by those involved into business could be explained a selection effect resulting from the reported entry of larger-scale entrepreneurs from other regions.
Year: 2009 HiCN Working Paper No. 060