Benefit in the wake of disaster: Long-run effects of earthquakes on welfare in rural Indonesia

• Published in: Journal of development economics Vol. 118; pp. 26 - 44
• Main Authors: Gignoux, Jérémie, Menéndez, Marta
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.01.2016; Elsevier Sequoia S.A; Elsevier
• Subjects: Aid and reconstruction; Creative destruction; Earthquakes; Economic impact; Indonesia; Natural disasters; Poverty traps; Productivity; Quantitative Finance; Rural areas; Rural Indonesia; Studies; Welfare; Indonesia; Productivity; Earthquakes; Welfare; Creative destruction; Poverty traps; Natural disasters; Rural Indonesia; Aid and reconstruction; Catastrophes naturelles; aide et reconstruction; aid and reconstruction; long-term effects; bien-être; effets à long terme; tremblements de terre; welfare; earthquakes; Indonésie rurale; rural Indonesia
• ISSN: 0304-3878; 1872-6089
• DOI: 10.1016/j.jdeveco.2015.08.004

We examine the long-term effects on individual economic outcomes of a set of earthquakes – numerous, large, but mostly not extreme – that occurred in rural Indonesia since 1985. Using longitudinal individual-level data from large-scale household surveys, together with precise measures of local ground tremors obtained from a US Geological Survey database, we identify the effects of earthquakes, exploiting the quasi-random spatial and temporal nature of their distribution. Affected individuals experience short-term economic losses but recover in the medium run (after 2–5 years), and even exhibit income and welfare gains in the long term (6–12 years). The stocks of productive assets, notably in farms, get reconstituted and public infrastructures are improved, seemingly partly through external aid, allowing productivity to recover. These findings tend to discount the presence of poverty traps and exhibit the potential long-term benefits from well-designed post-disaster interventions in contexts where disasters primarily affect physical assets. •We study the short- and long-run effects of earthquakes on welfare in rural Indonesia.•We merge data on longitudinal surveys and local intensities of past earthquakes.•After initial losses, individuals recover and even exhibit long-term welfare gains.•Business owners reconstitute their stocks of productive assets with aid transfers.•Post-disaster infrastructures reconstruction and improvements generate benefits.