Natural disasters, mitigation and household welfare in Indonesia: Evidence from a large-scale longitudinal survey

Abstract

Households around the world as well as in Indonesia have become exposed to a wider variety of vulnerabilities and risks in recent years due to an increase in the intensity and scope of natural disasters. This study aims to comprehensively examine the impact of natural disasters on Indonesian household welfare (consumption and poverty) using the Indonesian Family Life Survey (IFLS) of Wave 3 and 4. This study finds that households in rural areas are the most vulnerable to natural disasters; the average asset losses and medical/funeral costs from natural disasters are roughly USD 2,190/household. Our econometric models confirm that earthquakes are the most destructive disaster to affect household welfare, whereas droughts, forest fires, floods, and other disasters appear to have only moderate effects. Earthquakes reduce households’ probability of being non-poor by 5 percentage points. Disaster mitigation and preparedness play a significant role in reducing the devastating impacts of disasters and in lessening households’ vulnerability to poverty. The policy recommendations resulting from this study include advancing the provision of life and health insurance, promoting food buffers, and increasing households’ access to formal credit institutions.

Keywords:

• natural disasters
• mitigation
• welfare
• vulnerability
• poverty
• Indonesia

JEL Code:

• Q54
• I31
• I32

PUBLIC INTEREST STATEMENT

The number of natural disasters appears to be increasing globally. In the case of Indonesia, natural disasters such as floods and droughts destroyed nearly 3.4 million hectares of crops, while floods and earthquakes destroyed roughly 96 thousand kilometres of roads. Households in Indonesia experienced asset loss and out-of-pocket costs from natural disasters on average around IDR 21.9 million (USD 2,190). Therefore, these have increased household’s welfare vulnerabilities. This paper examines quantitatively the relationship between natural disasters and household welfare and poverty by exploring a large-scale longitudinal survey of IFLS (Indonesia Family Life Survey). Our study will contribute to prepare better and effective ex-ante responses to ensure that any long-term negative consequences on people’s welfare may be minimized. This study confirms that earthquakes are the most destructive disaster affecting household welfare, while droughts and forest fires also significantly affect household welfare, particularly agricultural households. Disaster mitigation and preparedness play a significant role in reducing the devastating welfare impacts of disasters.

Acknowledgements

The author would like to thank the Economic Institute for ASEAN and East Asia (ERIA) for the generous financial support in conducting this research, HIBAH PITMA A 2019 for the partial financial support for rewriting and converting the research report into a manuscript, and Theresia Kinanti Dewi and Edith Zheng Wen Yuan for their research assistance.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1. The adverse impacts of disasters on an economy or a society may be categorized into two definitions: damages to stock (including physical and human capital) and loss of flows due to business interruptions, such as production and/or consumption losses.

2. One potential dataset for exploring the issue of natural disasters is the Village Potential database (PODES), which records natural disasters that occur throughout all villages in Indonesia; however, this dataset does not record the socioeconomic impacts of disasters at the household level.

3. The thirteen provinces are North, West, and South Sumatera; West, Central, and East Java; DKI Jakarta; DI Yogjakarta; Bali; West Nusa Tenggara; South Kalimantan; and South Sulawesi.

4. The exchange rate in 2006–2007 was around US$ 1 = IDR 10,200.

5. Even though, there is a possibility of two-way relationship between disasters and poverty as mentioned in the literature review, this study only focuses on examining the relationship between natural disasters and poverty due to several data limitation.

6. The FGT classification of poverty follows this equation:

$P_{\alpha }=\frac{1}{n}\sum _{i=1}^q{\left(\frac{z-y_i}{z}\right)}^{\alpha }$

where P is the poverty index, n is the total population size, z is the poverty line, $y_i$ is the income of the $i^{th}$ individual (or household), q represents the number of individuals just below or at the poverty line, and $\alpha$ is a parameter for the FGT class. The average national poverty line is IDR 103,904 (2000) and IDR 166,642 (2007). The present study, however, applies the provincial poverty line, which varies among provinces as well as between rural and urban areas.

7. The category of “chronic poor” refers to those households that remained in the “poor” category during two periods of analysis (2000 and 2007). The “transient poor (-)” category means that households were non-poor in 2000 but had become poor by 2007, while “transient poor (+)” refers to households that were categorized as poor in 2000 but had become non-poor by 2007. The “never poor” category is assigned to those households that were always non-poor during both periods of the survey.

8. Around 30 percent of households received disaster compensation that was more substantial than the costs of the original damage.

9. The cross-sectional data could result in non-robust estimations due to the endogeneity problem as well as coincident outcomes because explanatory variables of disasters represent experiences (i.e., conditions during the period 2002–2007), whereas per-capita consumption and poverty status represent a recent status.

Additional information

Funding

This work was supported by the Economic Research Institute for ASEAN and East Asia [The project of 2013]; Universitas Indonesia [Hibah PUTI 2020].

Notes on contributors

Teguh Dartanto

Teguh Dartanto is a Dean, Faculty of Economics and Business, Universitas Indonesia. He was formerly Vice Dean and a Head of the Department of Economics at Universitas Indonesia. Teguh Dartanto is also a Head of Cluster Research on Poverty, Social Protection and Human Development in the same department. His expertise lies in poverty analysis, social protection, development economics, and health economics. His research has been published in numerous journals, including The Lancet, Applied Health Economics and Health Policy, Economic Modelling, Tobacco Control, World Development Perspectives, International Journal of Environmental Research & Public Health, Vulnerable Children and Youth Studies, Bulletin of Indonesian Economic Studies, Energy Policy and Singapore Economic Review. He is actively engaged in research collaboration with domestic and international counterparts such as JPAL Southeast Asia, ANU, ADB, UNDP, JICA, and OECD. Prior to that, he received a Monbukagakusho Scholarship to pursue his Master of Economics degree at Hitotsubashi University and then his Ph.D. in International Development at Nagoya University.