We exploit a 1991-2010 Tanzanian household panel to assess the effects of the temporary refugee
inflows originating from Burundi (1993) and Rwanda (1994). We find that refugee presence has had a persistent and positive impact on the welfare of the local population. We investigate the possible
channels of transmission and underscore the importance of a decrease in transport costs as key driver
of such a persistent change in welfare. We interpret these findings as the ability of a temporary shock
to induce a persistent shift in the equilibrium through subsequent investments rather than a switch to a
new equilibrium in a multiple equilibrium setting