Neighbourhood Effects, Preference Heterogeneity and Immigrant Educational Attainment

This paper investigates differences between the educational attainment immigrants and native born individuals in Australia by using Australian Youth Survey (AYS) data combined with aggregate Australian Census data. We decompose differences in educational attainment into: (i) typical demographic and socio-economic sources common to all ethnic groups, (ii) unobserved region of residence and region of origin effects, and (iii) neighbourhood effects such as degree and ethnic concentration of particular ethnic groups in different neighbourhoods. A theoretical model incorporating these effects is proposed but structural estimation is not possible for lack of appropriate data. Instead, a reduced form methodology is proposed and employed. The empirical results identify positive ethnic neighbourhood effects in high school completion and university enrolment for some immigrants to Australia, in particular first and second generation immigrants from Asia. The results indicate that it is not just the size of the ethnic network but the quality of the network that is important.