Existing studies on contextual health effects struggle to account for compositional bias, limiting causal interpretation. We use refugee dispersal in Germany as a natural experiment to study the effect of area-level socioeconomic deprivation on mental and physical health, while considering the potential mediating role of neighbourhood characteristics. Refugees subject to dispersal (n = 1466) are selected from a nation-wide longitudinal refugee study (IAB-SOEP-BAMF Panel; 2016-2018). …