The Impact of COVID-19 Lockdowns on Household Income, Consumption and Expectations: Evidence from High-frequency Data in Indonesia

Abstract

We investigate the causal impact of Covid-19 lockdowns on household income, income expectations, consumption of durable goods and budget allocation in Indonesia using high-frequency data from the monthly Bank Indonesia Consumer Survey, which had more than 176,000 respondents. We find that Covid-19 lockdowns had a large and significant adverse impact on household income, expectations and consumption. We also find that households tried to smooth consumption in the face of declining income, resulting in a significant increase in the budget allocated to consumption while reducing the shares of debt repayments and savings. The impact of lockdowns on households was also heterogeneous by expenditure levels, regions and levels of education. These findings have important implications for policy intended to cushion the pandemic’s impact on households and ensure a more inclusive recovery.

Keywords:

• Covid-19
• lockdowns
• households
• income
• consumption
• expectations

JEL classifications:

• C83
• D14
• D84
• E21
• E22

ACKNOWLEDGMENTS

We thank BIES editor Robert Sparrow, the two anonymous referees, Daniel Suryadarma and the attendees of a Bank Indonesia Institute seminar (2021), for their useful comments. We thank Bank Indonesia’s statistics department for helping us to gather the survey data. Jahen F. Rezki and Asep Suryahadi acknowledge financial support from the Bank Indonesia Institute. All errors are our own.

Notes

1 For more details, see https://ourworldindata.org/covid-cases.

2 See https://www.bi.go.id/en/publikasi/laporan/default.aspx?Category=consumer%20 survey&Period=

3 The sample in BI-CS data is different in each survey. Therefore, the variation in the data set is cross-sectional. The samples for each wave are statistically comparable, except for the share of high school and below. Nonetheless, the difference is not substantial.

4 Appendices can be accessed online at http://dx.doi.org/10.1080/00074918.2023.2167930.

5 Appendices can be accessed online at http://dx.doi.org/10.1080/00074918.2023.2167930.

6 Appendices can be accessed online at http://dx.doi.org/10.1080/00074918.2023.2167930.

7 This was done by searching PSBB news for each province per month from March 2020 to February 2021—for example, ‘PSBB Jawa Timur Juni 2020’. We also used information from AHK Indonesia on the development of Covid-19 to corroborate our searches (https://indonesien.ahk.de/en/infocenter/news/news-details/covid-19-developments-in-indonesia).

8 The Jakarta Post reports that almost half of the manufacturers with operational and mobility permits did not comply with the Covid-19 regulations (https://www.thejakartapost.com/ news/2020/11/05/only-half-of-manufacturers-comply-with-covid-19-reporting-requirement. html).

9 In our robustness analysis, we also use the length of a lockdown (in days) as an alternative independent variable. The results for the alternative independent variable suggest a similar finding to what we obtained from using a dummy for lockdowns. See appendix table B4 online for further information (http://dx.doi.org/10.1080/00074918.2023.2167930).

10 The inclusion of time fixed effects mitigates the potential supply-side disruptions that occurred in all provinces in Indonesia owing to the implementation of lockdown policies.

11 Appendices can be accessed online at http://dx.doi.org/10.1080/00074918.2023.2167930.

12 Appendices can be accessed online at http://dx.doi.org/10.1080/00074918.2023.2167930.

13 Our preferred model is always the 2SLS with covariates included throughout the analyses due to the endogeneity concerns for our main independent variable.

14 Appendices can be accessed online at http://dx.doi.org/10.1080/00074918.2023.2167930.

15 An index value of change in income of –0.62 relative to the pre-2020 average versus –1.26 relative to the average between January and February 2020. See appendix table B1 online for the averages (http://dx.doi.org/10.1080/00074918.2023.2167930).

16 $1 equalled roughly Rp 14,500 on average in 2020.

17 https://blogs.worldbank.org/opendata/new-world-bank-country-classifications-income-level-2021-2022

18 Appendices can be accessed online at http://dx.doi.org/10.1080/00074918.2023.2167930.