Maystadt and Duranton (2018) assess the long-term impact of temporary refugee inflows from Burundi and Rwanda on the welfare of the host population in Tanzania. About one million refugees fled Burundi in 1993 and Rwanda in 1994 and sought refuge in the Kagera region of Tanzania. Rwandan refugees were repatriated in 1996, and most Burundian refugees had either returned to their country of origin or relocated to a neighboring region by 2004.
The authors exploit time and spatial variations in the way Tanzanian households were affected by refugee inflows over time. The analysis is based on Tanzanian household panel data from the Kagera Health and Development Survey (KHDS), covering the period 1991 to 2010.
The analysis reveals a sizeable increase in welfare for villages more exposed to refugees, which persisted long after refugees were repatriated or relocated elsewhere. The refugee presence significantly increased real consumption per adult equivalent between 1991 and 2004 and even more strongly between 1991 and 2010 (see the illustration below), even though most refugees left between 1996 and 2000. The presence of refugees had a positive and persistent impact on the host economy, which did not fade over time.
The most important channel of transmission for persistent changes in welfare is the sizable decrease in transport costs and prices of goods attributed to large-scale investment in road infrastructure. Large-scale investments in road infrastructure to service refugee camps had a positive and significant impact on road accessibility. The consequent decrease in transport costs is strongly associated with the persistent welfare improvement in high-refugee areas. The welfare-improving impact of road accessibility in high-refugee areas is corroborated by the decreasing effect on the prices of goods. The authors did not find any evidence that changes in the provision of local public goods, agglomeration economies, or enhanced trade with neighboring countries explain the persistent increase in real consumption in high-refugee areas compared with other areas.
This paper also contributes to the broader literature on the long-run effects of shocks and the identification of multiple equilibria. The authors conclude that, in the case of the Kagera region, the temporary population shock induced a permanent shift in the equilibrium through subsequent infrastructure investments rather than a switch to a new equilibrium in a multiple-equilibrium setting. In simple terms, the large changes that occurred following the influx of refugees and that persisted after their departure can be explained to a great extent by new roads built to serve the refugee camps, which reduced transport costs.