Economic Network Effects and Immigrant Earnings†

Do ethnic enclaves assist or hinder immigrants' economic performance? The empirical literature on this question is inconclusive. In this paper we extend the literature by constructing a dynamic variable from micro-panel data to capture the effects of spatial networks of immigrants' ethnic-specific resources. We account for endogeneity of the network and other variables. Using the HILDA data set, and a suite of robustness checks, results show that immigrants' earnings are positively associated with the concentration and resources of their country-of-birth group. The effect is prominent for immigrants born in non-English-speaking countries and for high-skilled immigrants, highlighting positive ethnic network spill-over effects for these groups. Moreover, accounting for the network variable provides a viable explanation for the divisions in previous international results on ethnic concentration.