Mutual Benefits of Proximity: Economic Interactions Between Refugees and Hosts in Uganda

Refugees are mainly hosted in low-income countries, where they often remain for a long time. Therefore, it is important to assess whether they can integrate with the local economy, and whether their presence can contribute to the transition to a more dynamic economic environment. Proximity between refugees and hosts could generate negative externalities by displacing local activities and jobs. On the other hand, it could improve the welfare of both groups by increasing opportunities for mutually beneficial economic exchanges; in particular, welfare gains might be generated through the availability of a greater variety of commodities. In this paper we propose an empirical analysis which makes use of a unique dataset covering around 80% of the refugee population living in Ugandan settlements and the cohabiting host households. The results show that proximity between groups increases the food expenditure and the variety of food consumption of both groups. We also found that exposition to inter-group interactions increases the non-food expenditure and the probability to run an enterprise by refugees, while hosts are not crowded out from production. Our results are consistent with a theoretical model where the love-for-variety hypothesis is used to interpret the mutual benefits arising from interactions facilitated by proximity.