The findings of the study will have implications for the 2019 Ethiopian proclamation which repeals the 2004 refugee law to grant all refugees in Ethiopia the right to work and free movement, among others. The proclamation could lead to intense competition between refugee and local communities for work and other services and consequently depress the observed positive effects on host communities in most refugee hosting regions. The effect of the policy could be larger in major refugee hosting communities in Ethiopia, particularly in Gambella region, where the number of refugees is as large as the population of the region. This could have a substantial negative consequence on host communities’ livelihood, which may lead to hostilities between host and refugee communities, e.g., in Gambella. Interventions that create more jobs and maintain or build public infrastructure in host communities, such as the World Bank’s Development Response to Displacement Impacts Project (DRDIP), may favor a smooth transition to the new policy environment.

This study has three limitations. First, in the absence of data on net income (gross income minus cost) for all income sources, we could not measure livelihood diversification in terms of net income from each activity, which is the common approach in the literature. However, income is the return of labor allocated to the different activities, which make us to believe that measuring livelihood diversification based on labor is a good proxy for income-based livelihood diversification. Second, as we did not have the price of livestock products, or the value of total livestock production, we measure agricultural commercialization in terms of gross sale of livestock products. We used a similar measure for crop commercialization for the sake of consistency. As these measures do not consider the scale of production, we could not confirm that the observed effect on livestock sale is due to actual market participation. However, total sale is still a good measure for commercialization, whatever is produced.

Finally, we were not able to assess whether the observed effects lead to better livelihood outcomes as our data does not contain information on consumption, full spectrum of assets and income sources. While this needs to be explored further in the presence of refugee communities, previous studies have shown that livelihood commercialization and diversification are associated with better livelihood and welfare outcomes (see e.g., Ochieng et al. 2019; Loison 2015).

# **Acknowledgments**

We are grateful to Matthew Stephens, Sandra Viviana Rozo Villarraga, and Kibrom Tafere at the World Bank for providing comments on earlier versions of the paper. We thank the UNHCR office in Addis Ababa for providing the refugee population data in Ethiopia and to Berhanu Ayalew at Food and Agricultural Organization for providing information on local contexts. This work is part of the program “ _Building the Evidence on Protracted Forced Displacement: A Multi-Stakeholder Partnership_ ''. The program is funded by UK aid from the United Kingdom's Foreign, Commonwealth and Development Office (FCDO). It is managed by the World Bank Group (WBG) and was established in partnership with the United Nations High Commissioner for Refugees (UNHCR). The scope of the program is to expand global knowledge on forced displacement by funding quality research and disseminating results for the use of practitioners and policy makers. This work does not necessarily reflect the views of FCDO, the WBG or UNHCR.

21