Refugees are mainly hosted in low-income countries, where they often remain for a long time. Therefore, it is important to assess how they integrate with the local economy and to what extent their presence can contribute to the transition to a more dynamic economic environment. Proximity between refugees and hosts might improve the welfare of both groups by increasing opportunities for mutually beneficial economic exchanges. In particular, welfare gains might be generated through the availability of a greater variety of commodities. In this paper we propose a theoretical model that uses the love for variety to frame the possible benefits arising from the interaction between hosts and refugees facilitated by geographical proximity. We complement the conceptual framework with an empirical analysis that makes use of a unique dataset covering around 80% of the refugee population living in Ugandan settlements and the adjoining host households. The empirical results show that proximity between groups increases the food expenditure and the variety of food consumption of both groups. We also found that exposition to inter-group interactions rises the non-food expenditure, and the probability to run a farm and a non-farm enterprise by refugee households, while hosts are not crowding out from production.
 

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