Iranians suggesting that bad economic times increase the movement of individuals perhaps to find better opportunities. Notably, the interaction term of the Afghan dummy with the shock variable significantly increases the probability of replacement in all estimations. According to the marginal effects of matching estimation, one unit increase in shock raises the replacement rate by 0.047, 14.5% of its SD (0.325) in the matched sample.

A higher sample replacement rate for Afghan refugees suggests that in turbulent times the life of the displaced population becomes worse than natives, and thus many of them prefer to leave the host country. Since we cannot track the replaced individuals in the sample, it is not possible to compare their living conditions before and after movement, but column (2) of Table 4 gives us some idea about the characteristics that increase the probability of replacement. Sample replacement is more likely for household heads, females, smaller households, married, young, and less experienced individuals. The education fixed effects, which are not reported in column (2) of Table 4 for better illustration, imply an increasing relationship between years of education and sample replacement rate. Overall, it seems that during bad economic times in the host country, the displaced population with better prospects outside (more educated), more able to move (young, small households), and less attached to the host county labor market (less experienced, female), are more likely to not remaining in the sample next year.

Our finding regarding sample replacement rate is consistent with the aggregate number of Afghan individuals crossing Iran borders. Figure 7 uses the International Organization for Migration (IOM) data about the number of Afghan individuals exiting<sup>6</sup> from two Iranian borders (Herat and Nimrouz) toward Afghanistan and compares it with our measure of economic shock. We observe that the number of exiting Afghan refugees from Iran increases when the exchange rate sharply increases. This finding sense checks our conclusion from Table 4 that a higher replacement rate of Afghan refugees translates to their higher exit rate from Iran and not only higher mobility within Iran’s borders.

We present estimations of equation (1) for the rest of the transition variables in Appendix Table 3, but we do not find much significant coefficient for the interaction term. This outcome is not surprising for two reasons: First, based on the above discussion, the replacement rate of Afghan refugees in the LFS sample is significantly higher than Iranians, creating a bias because the replaced sample is systematically different from remainders. Second, because of the refreshing rotating panel sample frame by SCI in 2013 and 2018 and the unavailability of the survey for 2020, the transition variables are unknown for three crucial years in the period of study in which economic fluctuation was high.

# **5.2. The unequal effect of economic shocks on expenditure and income**

In Table 5, we estimate the unequal effect of shocks on expenditure, income, and wage rate using HEIS data. The coefficient of the Afghan dummy in panel A of Table 5 shows that, on average, Afghan households spend less and have lower total income than Iranians. However, their earned income is higher than Iranians because of higher labor force participation. In the HEIS sample, while 88% of Afghan households’ heads are in the labor force (employed or unemployed), this number is 70% for Iranian households’ heads. In column (10), we find that the wage rate is also higher for Afghan households, consistent with the anecdotal evidence that they have more labor productivity in unskilled jobs than Iranians.

The effect of economic shocks is negative on expenditure but positive on income and wage rate. Although the positive impact of economic shocks on income and wage is counter-intuitive, our price deflator (CPI index) can be a reason for the positive coefficients. Because the exchange rate shock does not instantly pass through CPI, it perhaps shows its effect on nominal income more immediately than on the CPI price deflator. For expenditure items, our deflator is the monthly price index of the item, and thus the

> 6 IOM data has no information about the movement from Afghanistan toward Iran nor information on exit before 2015. One reason for unavailability of entrance data is that many Afghan refugees enter Iran via human smuggling while there is no restriction for them to exit from the borders.

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