Critical periods and the long-run effects of income shocks on education: evidence from Indonesia

This paper examines how adverse shocks experienced by households, such as natural disasters, crop or job losses, or deaths, influence the acquisition of human capital of children, in the long run, and investigates whether some periods of childhood appear to be more critical in the sense that shocks during those have more lasting impacts. We use data from the four waves of the Indonesian Family Life Surveys (1993, 1997, 2000 and 2007), and follow a panel of siblings from early ages into young adulthood. Our preliminary results exhibit heterogeneities by areas and types of shocks: in the long-run, natural disasters, deaths and market shocks are found to negatively affect educational attainments of children in urban households, while crop losses have a similar long-lasting effect in rural areas. Moreover, we find little evidence in this sample that shocks experienced earlier in life have more lasting impacts than later ones. Finally, our preliminary findings do not indicate that locality-level negative shocks have direct effects on human capital investments beyond the direct losses suffered by households. This study is still ongoing, and an important progress under way is the use of objective data on shocks using meteorological data on natural disasters, and notably earthquakes, that occurred in Indonesia over the last 20 years or so.