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Why a Market-Based Approach Is Key to Unlocking Refugees’ Potential

Better understanding the unique economic position held by displaced peoples could transform policy concerning them, write authors Alexander Betts, Louise Bloom, Josiah Kaplan and Naohiko Omata in an extract from the pioneering study “Refugee Economies.”

Written by Alexander Betts, Louise Bloom, Josiah Kaplan, Naohiko Omata Published on Read time Approx. 5 minutes
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A market in Uganda's Nakivale settlement. Alex Betts

Outcomes for refugees are shaped not only by states, but also by markets. Historically, the international community has looked at the issue in terms of the relationship between states and refugees. However, the real question is for us to consider the relationship between states, markets and refugees if we want to maximize opportunities not only for protection and assistance, but also for autonomy and human flourishing.

Engagement with the private sector has often been viewed with suspicion by organizations working with refugees. Yet, alongside a role for states, market-based approaches offer a potentially game-changing opportunity for refugee self-reliance. Refugees represent opportunities for business and entrepreneurship. Perhaps more importantly, they themselves can be entrepreneurial and create businesses.

Even though their activities may not always be recognized, refugees almost everywhere in the world are engaging with markets. In a globalized world, they have economic networks that are both national and transnational. Far from being exclusively dependent upon international assistance, they often create economic opportunities for themselves and others even in adverse conditions.

Pioneering research has already taken place on the economic lives of refugees, drawing attention to, and describing key aspects of, the economy of refugee camps and urban areas. What has been largely missing, however, is a firm grounding in data and a clear theoretical framework. This is in part because although economists have focused on immigration more broadly, they have rarely looked at questions relating to refugees and forced migration.

We therefore seek to develop a theoretically informed and data-driven approach to understanding the economic lives of refugees. Our key theoretical undertaking is to develop the concept of “refugee economies.”

We define “refugee economies” as the resource-allocation systems relating to the lives of refugees. This represents an attempt to look holistically at what shapes the production, consumption, finance and exchange activities of refugees, and to begin to explain variation in economic outcomes for refugees themselves. Our goal is to examine refugees’ own interactions with markets, both for their own sake and as a means to understand how externally driven programs might build on what already exists, rather than be based on abstract – and sometimes arbitrary – interventions.

What makes refugees’ economic lives distinctive is the unique institutional context of being a refugee. As we know from a body of economic theory called New Institutional Economics, markets are shaped by their institutional context.

‘Refugeehood’ represents a particular institutional framework that introduces a set of constraints and opportunities into the economic lives of refugees.

Building on the insights of New Institutional Economics, we therefore identify the institutional factors that make refugees’ economic lives distinctive compared to citizens or other groups of migrants.

We argue that refugees are in a distinctive economic position because of their positioning between three different sets of institutions. First, they lie between state and international governance. They are partly under the authority of the state and partly under the authority of international organizations. Second, they lie between the formal and informal sectors. They usually have some legitimate access to the formal economy, but also frequently face regulatory restrictions compared to citizens. Third, they lie between national and transnational economies. Given their differing networks, their primary sources of exchange and capital may sometimes be transboundary.

These three areas are stylized categories, and they apply to different refugee populations to different degrees. But they serve to illustrate the important ways in which “being a refugee” conceptually places refugees in an institutionally distinctive position. In different ways, they draw attention to the way in which the institutional context of “refugeehood” leads to both constraints and opportunities.

We also know from economic theory that the market imperfections and distortions that result from particular institutional contexts can have distributive consequences. This may in turn create opportunities for some people to innovate, adapt and engage in forms of arbitrage across regulatory environments. We suggest that this is also the case for refugees, whose economic outcomes are not only shaped by institutional structures, but also by the agency and capacity of particular individuals – “innovators” – to transform constraints into opportunities for themselves and others.

In order to explore refugee economies, we focus on one particular country: Uganda. This case study is not in any way intended to be representative. On the contrary, we have chosen it because it represents an outlier. It is a country that has adopted a relatively progressive refugee policy called the Self-Reliance Strategy. Unlike many other refugee-hosting countries around the world, it has given its 420,000 refugees the right to work and a significant degree of freedom of movement.

Although Uganda’s treatment of refugees is far from perfect, it has offered an unusually high level of socioeconomic freedom to refugees. Uganda therefore enables us to explore what is possible – in terms of what refugees can do and contribute economically – when given basic economic freedoms. While not representative, it can therefore provide important insights and lessons into what might be possible if other host countries were prepared to also adopt similar policies.

Uganda also offers enough internal variation within its refugee-hosting practices to provide a useful context for comparative research within a single country. First, it hosts a significant number of urban refugees. Second, it has protracted rural refugee settlements. Third, it also hosts an emergency relief context with recent arrivals from violence in the Democratic Republic of Congo. Uganda also hosts a range of nationalities, including Somalis, Congolese, South Sudanese, Rwandans, and Burundians. This variation is especially useful for our attempts to explain different economic outcomes for refugees.

We selected four research sites in Uganda: the capital city, Kampala, host to the largest urban refugee population in the country; the Nakivale and Kyangwali refugee settlements in the southwest of the country, the most populated two settlements in the country at the start of the research; and the Rwamwanja settlement, reopened recently to provide an emergency response to the mass influx of Congolese refugees fleeing violence.

Across each of these sites, we have used participatory research methods, employing national research coordinators and refugee researchers, whom we trained as peer researchers and enumerators. This approach played a crucial role in ensuring access, building networks of trust and improving the quality of our research. We also felt strongly that it provided a way to ensure our research had a positive legacy within the community.

Our overall argument is that refugees have complex economic lives. Despite the significant constraints of having to adapt to new regulatory environments, new social networks and new markets, refugees are consumers, producers, buyers, sellers, employers, employees and entrepreneurs. They engage in market-based activities that are worthy of understanding. This, we argue, opens up exciting new avenues for research and enables us to better understand what is analytically distinctive about the economic lives of refugees.

Furthermore, if we are able to recognize these economic lives and to explain variation in economic outcomes for different groups of refugees, this in turn offers a means to radically rethink refugee assistance. Rather than designing abstract projects and programs that exist in a vacuum, this understanding might enable international organizations and NGOs to build meaningfully upon and nurture the skills, talents and aspirations of displaced communities. This may enable us to move collectively from a logic of dependency towards greater sustainability within our responses to refugees.

This is an edited extract from the newly published Refugee Economies: Forced Displacement and Development by Alexander Betts, Louise Bloom, Josiah Kaplan and Naohiko Omata.

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