Better Together – or not? Community Participation, Consumption Smoothing and Household Head Employment in Indonesia

This paper analyzes whether participation in formal and informal community activities helped household in Indonesia mitigating the impact of the 1998 economic crisis and increasing the probability of household head being employed. The paper uses the 1997 and 2000 round of Indonesian Family Life Survey (IFLS) to capture the impact of economic crisis on household welfare. The empirical results do not seem to support those hypotheses. Using number of children in each household as instrumental variable to solve the reverse causality and omitted variable bias problems, we find no statistically significant effect of community participation on the ability of households to mitigate expenditure shocks and to smooth consumption. The large magnitude and universal nature of the shock might explain why social capital did not help households. Participation in community activities also does not seem to significantly explain the probability of household heads being employed in the period of the crisis.