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) neighborhood effects such as degree and ethnic concentration of particular ethnic groups in different neighborhoods. 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 neighborhood effects in high school completion and university enrollment 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