Refugee inflows, surplus farm labor, and crop marketization in rural Africa

Abstract

This paper sheds light on the structure of factor and output market frictions to investigate long-term effects of refugee inflows on host farmers. Combining a canonical agricultural household model, the natural experimental setting of mass refugee inflows into Tanzania in the early 1990s, and longitudinal panel data from the host economy, I show that refugee inflows cause market-specific gains and losses. Refugee inflows tighten the off-farm labor market participation constraint, implying an increase in surplus farm labor and labor market inefficiency. On the other hand, I observe a positive impact on the transition from subsistence to crop marketization. This transition is revealed to be primarily due to a reduction in fixed transaction costs around refugee camps, not due to an increase in consumption demand by refugees. While the overall impact on agricultural labor productivity is negative, the “surplus farm labor effect” and the “crop marketization effect” act in opposite directions.