Nicolas Polasek

Most forcibly displaced people are displaced within their own country and hosted in low- and middle-income countries, yet how their arrival affects host communities remains poorly understood, particularly in rural areas. This paper estimates the effects of conflict-induced internal displacement on hosts in Ethiopia between 2018 and 2022, combining household panel data with an enclave shift-share instrument that interacts the origin composition of a host area's existing displaced population with subsequent conflict shocks in those origin areas. Effects differ sharply across destinations. In rural areas, displacement raises local food prices by about 3 percent, leaves food expenditure unchanged once deflated, and worsens food security, while pulling hosts into household agricultural work and shifting production from cash crops towards staples — the pattern of a demand shock on food markets that local supply cannot accommodate. In urban areas, food prices fall, deflated food expenditure rises by about 17 percent, food security improves, and hosts move out of agriculture into wage employment. Splitting the sample on market integration reproduces the price and consumption divide without using the rural–urban classification, indicating that connectedness to outside markets, rather than the rural label itself, governs whether displacement is transmitted into prices. Food aid restrains prices where it reaches, but its coverage erodes roughly three times faster in rural areas as inflows grow. The educational composition of the workforce then determines which hosts can move between sectors in response.