Turning to agricultural commercialization, a 1% increase in refugee inflow leads to a very high increase (16.0% and 15.9% without and with controls) in livestock sales while we do not see a statistically significant effect on sale of crop products. This could be attributed to two facts related to the refugee situation in Ethiopia. First, most refugees are typically provided with cereals to meet their food requirements. This leads to the: (i) creation of a market and increase demand for livestock or its products relative to crop products, and (ii) selling of the cereals that the refugees received as assistance, increasing the supply of crop products, which could depress prices and make commercialization of crop products less attractive (Vemuru et al., 2020). These differential changes in markets and prices of livestock and crop products may lead to structural changes in livelihood: household and individuals allocate their labor primarily to livestock production than crop production. We will turn to this in the mechanisms section (see below). Second, most of the refugees are pastoralists, who demand more livestock products (e.g., milk) than crop products due to their dietary traditions. The demand effect is larger, also observed around Kakuma refugee camp in Kenya by Alix-Garcia et al. (2018), as dairy products are rarely included in the refugee food assistance bundle.

Table 1: OLS and 2SLS estimation of the impact of refugee inflow on livelihood diversification and agricultural commercialization at household level

||(1)<br>OLS|(2)<br>2SLS|(3)<br>2SLS|(4)<br>OLS|(5)<br>2SLS|(6)<br>2SLS|
|---|---|---|---|---|---|---|
||IHS(Prima<br>diversifica|**_P_**<br>ry activity<br>tion)|**_anel A: Livelih_**|**_ood diversific_**<br>IHS|**_ation_**<br>(Secondary a<br>diversificatio|ctivity<br>n|
|IHS (refugee presence)|0.014|-0.392|-0.338|0.047|2.508**|2.733**|
||(0.029)|(0.285)|(0.297)|(0.110)|(1.143)|(1.274)|
||IHS|**_Pane_**<br>(Crop produc|**_l B: Agricultu_**<br>t sale)|**_ral commerci_**<br>IHS(L|**_alization_**<br>ivestock prod|uct sale)|
|IHS (refugee presence)|0.264|1.305|-1.336|0.435|16.036**|15.845**|
||(0.262)|(1.983)|(2.927)|(0.309)|(7.239)|(7.610)|
|N|3375|3375|3375|3375|3375|3375|
|Kebele fixed effects|Yes|Yes|Yes|Yes|Yes|Yes|
|Nearest region fixed|Yes|Yes|Yes|Yes|Yes|Yes|
|effects|||||||
|Controls|Yes|No|Yes|Yes|No|Yes|

***significant at 1%, **significant at 5%. *significant at 10%, village level clustered standard errors in parenthesis; IHS stands for inverse hyperbolic sine transformation.

# **_Region and gender differentiated effects_**

Table 2 presents the 2SLS estimation by region. The results show that the overall findings tend to be heterogeneous across regions. Positive effects of refugee presence on diversification of livelihood activities as a primary occupation were documented in Tigray region while a negative effect was documented in Afar and Somali. All these effects were inelastic. Regarding diversification of activities as a secondary occupation, a positive effect was observed in Tigray, Afar and Somali regions while a negative effect was observed in Gambella region. All these effects were inelastic, except for the Somali region. The refugee presence had an inelastic negative effect on sale of crop products in Tigray and Gambella regions. In contrast, the refugee presence had an inelastic positive effect in Tigray region and an elastic positive effect in the Somali and Benishangul-Gumuz regions. We observed a marginally significant positive effect of the refugee presence on diversification of activities as a primary occupation (very inelastic) and sale of crop products (very elastic) in Benishangul-Gumuz region. The results revealed the 16