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.