Population Research and Policy Review

, Volume 29, Issue 4, pp 503–526

External Shocks, Household Consumption and Fertility in Indonesia



This paper examines the impact of idiosyncratic income shocks on household consumption, educational expenditure and fertility in Indonesia, and assesses whether the investment in human capital of children and fertility are used to smooth household consumption. Using four different kinds of self-reported economic hardships, our findings indicate that coping mechanisms are rather efficient for Indonesian households that perceive an economic hardship. Only in case of unemployment do we find a significant decrease in consumption spending and educational expenditure while fertility increases. These results indicate that households that perceive an unemployment shock use children as a means for smoothing consumption. Regarding the death of a household member or natural disaster we find that consumption per person even increases. These results are consistent with the argument that coping mechanisms even over-compensate the actual consumption loss due to an economic hardship. One important lesson from our findings is that different types of income shock may lead to different economic and demographic behavioral adjustments and therefore require specific targeted social insurance programs.


Consumption Economic shocks Social insurance Fertility Indonesia 


  1. Alem, M., & Townsend, R. M. (2003). An evaluation of safety nets and financial institutions in crisis and growth. University of Chicago, Working Paper.Google Scholar
  2. Cameron, L. A., & Worswick, C. (2001). Education expenditure response to crop loss in Indonesia: A gender bias. Economic Development and Cultural Change, 49(2), 351–363.CrossRefGoogle Scholar
  3. Cameron, L. A., & Worswick, C. (2003). The labor market as a smoothing device: Labor supply responses to crop loss. Review of Development Economics, 7(2), 327–341.CrossRefGoogle Scholar
  4. Chetty, R., & Looney, A. (2007). Income risk and the benefits of social insurance: Evidence from Indonesia and the United States. In T. Ito & A. Rose (Eds.), Fiscal policy and management in East Asia: NBER East Asia seminar on economics 16. Chicago: University of Chicago Press.Google Scholar
  5. Duryea, S., Lam, D., & Levison, D. (2007). Effects of economic shocks on children’s employment and schooling in Brazil. Journal of Development Economics, 84, 188–214.CrossRefGoogle Scholar
  6. Foster, A., & Roy, N. (1997). The dynamics of education and fertility: Evidence from a family planning experiment. University of Pennsylvania, Working Paper.Google Scholar
  7. Frankenberg, E., & Karoly L. (1995). The 1993 Indonesian Family Life Survey: Overview and field report. Santa Monica, CA: RAND.Google Scholar
  8. Frankenberg, E., McKee, D., & Thomas, D. (2005). Health consequences of forest fires in Indonesia. Demography, 42(1), 109–129.CrossRefGoogle Scholar
  9. Frankenberg, E., & Thomas, D. (2000). The Indonesia Family Life Survey (IFLS): Study design and results from waves 1 and 2. Santa Monica, CA: RAND. DRU-2238/1-NIA/NICHD.Google Scholar
  10. Grimm, M. (2009), Mortality and survivors’ consumption growth. Oxford Bulletin of Economics and Statistics (forthcoming).Google Scholar
  11. Pitt, M., & Rosenzweig, M. (1986). Agricultural prices, food consumption and the health and the productivity of Indonesian farmers. In I. Singh, L. Squire, & J. Strauss (Eds.), Agricultural household models: Extensions, applications and policy (pp. 153–182). Baltimore: Johns Hopkins University Press.Google Scholar
  12. Schultz, T. P. (1997). Demand for children in low income countries. In M. Rosenzweig & O. Stark (Eds.), Handbook of population and family economics (pp. 349–430). Amsterdam: Elsevier Science.Google Scholar
  13. Skoufias, E. (2003). Economic crises and natural disasters: Coping strategies and policy implications. World Development, 31(7), 1087–1102.CrossRefGoogle Scholar
  14. Strauss, J., Beegle, K., Sikoki, B., Dwiyanto, A., Herawati, Y., & Witoelar, F. (2004). The third wave of the Indonesia Family Life Survey (IFLS): Overview and field report. WR-144/1-NIA/NICHD.Google Scholar
  15. Townsend, R. M. (1994). Risk and insurance in village India. Econometrica, 62(3), 539–591.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media B.V. 2009

Authors and Affiliations

  1. 1.Korea Development InstituteSeoulKorea
  2. 2.Institute for Mathematical Methods in Economics (Research Unit Economics)Vienna University of TechnologyViennaAustria
  3. 3.Vienna Institute of Demography, Austrian Academy of SciencesViennaAustria

Personalised recommendations