Economic Consequences of Forced Displacement

Currently, there are over 42 million people around the world that have been forcibly displaced from their homes. Researchers have posited that this movement has severely impacted the affected populations, but due to estimation and data difficulties, little is known about the causal impact of this movement on livelihoods. This paper presents credibly causal evidence of the effect of displacement. A panel data set on households and communities near a conflict zone in northern Uganda offers the opportunity to exploit a geographic discontinuity design in order to minimize endogenous determinants of displacement and estimate the immediate and postdisplacement impact of displacement on civilians. I find that displaced households experience an initial decrease in consumption of between 28% and 35%, as well as a 1/2 standard deviation decrease in the value of assets compared to nondisplaced households. Two years after households returned home, displaced households still lag behind nondisplaced households with 20% lower consumption, and a 1/5 standard deviation less assets. However, as predicted by a heterogeneous neoclassical growth model, displaced households in the top three quartiles of predisplacement assets appear to have recovered a portion of their consumption, though with significantly reduced education and wealth levels. There is no recovery for the bottom quartile households, who appear to be trapped in a lower equilibrium.