Ethnic Enclaves, Self-employment, and the Economic Performance of Refugees: Evidence from a Swedish Dispersal Policy

Abstract

This article estimates the causal effect of residential concentration of co-ethnics (ethnic enclaves) on the probability to start a business among refugees in Sweden. Results indicate that the share of self-employed co-ethnics in the port of entry municipality increases refugees’ probability of entry into self-employment, while the actual share of local co-ethnics has no effect or, in some cases, a negative effect. The results support the conclusion that skills and resources within the local ethnic enclave, particularly skills relevant for self-employment, are crucial for generating new entry into self-employment for refugees, while simply more co-ethnics, plausibly increasing an ethnic market’s size, are of less importance. Moreover, the results suggest that being placed with a larger share of self-employed co-ethnics is negatively related to refugees’ long-term disposable income; however, assuming there is no or little selection of high-ability refugees into self-employment, this negative relationship can be counteracted by the choice of self-employment. The study adds new knowledge on the arguably crucial topic of socio-economic integration of an important group of international migrants — namely, refugees.