The economics of the Syrian refugee crisis in neighbouring countries: The case of Lebanon

Review

This paper examines the economic and social impact of the Syrian war and refugee flows on Lebanon. The authors employ a dynamic general equilibrium model to capture
forced displacement, discrimination, and segmented labor markets (distinguishing formal and informal jobs, as well as workers of three skill levels and three origins). The model is
used to conduct experiments to simulate: (a) the impact of the Syrian conflict on international trade and tourism in Lebanon, modeled as a 20 percent reduction in Lebanese exports; (b)
the impact of the large influx of Syrian refugees, modeled as an expansion of the labor supply in the informal sector; (c) the impact of increased foreign assistance to refugees; (c)
the impact of aid in various forms (humanitarian, development); and (d) the long-run impact of refugees’ consumption patterns.

Key findings:

  • The costs of lower trade and tourism in Lebanon are high given the importance of these sectors for the Lebanese economy.
  • The large influx of refugees has a positive impact on growth, slightly reinforced by humanitarian aid flows. When aid takes the form of investment subsidies,
    significantly better growth and labor market prospects arise, although it fails to completely make up for the loss in exports.
  • Inflows of refugees increase unemployment and reduce Lebanese labor income, for low- and medium-skilled workers. High-skilled workers are unaffected (or even
    slightly positively affected) by the inflow of refugees. This heterogeneity arises from the skill composition of refugees, and the fact that workers of different origins are substitutable and workers of different skill groups complementary in production. In addition, low- and medium-skilled workers have more limited emigration opportunities than high-skilled workers, and so they are less able to escape deteriorating employment conditions. Foreign workers, paid less than Lebanese workers, are the main competitors of refugees in the labor market.
  •  Influxes of refugees also affect structural change in Lebanon. The two channels are the skill composition of refugee population (mainly unskilled informal workers), which create a labor supply shock beneficial to sectors that are intensive in informal low‐skilled labor, and the different consumption patterns of the refugees.

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