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VU Research Portal The Socio-economic Impacts of Natural Disasters: Empirical Studies on Indonesia Brata, A.G. 2017 document version Publisher's PDF, also known as Version of record Link to publication in VU Research Portal citation for published version (APA) Brata, A. G. (2017). The Socio-economic Impacts of Natural Disasters: Empirical Studies on Indonesia. General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal ? Take down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. E-mail address: [email protected] Download date: 04. Oct. 2021 THE SOCIO-ECONOMIC IMPACTS OF NATURAL DISASTERS: EMPIRICAL STUDIES ON INDONESIA Aloysius Gunadi Brata The Socio-economic Impacts of Natural Disasters: Empirical Studies on Indonesia © Aloysius Gunadi Brata, July 2017 Design & layout : Aloysius Gunadi Brata Printing : Reprographics VU Universiteit Amsterdam VRIJE UNIVERSITEIT The Socio-economic Impacts of Natural Disasters: Empirical Studies on Indonesia ACADEMISCH PROEFSCHRIFT ter verkrijging van de graad Doctor aan de Vrije Universiteit Amsterdam, op gezag van de rector magnificus prof.dr. V. Subramaniam, in het openbaar te verdedigen ten overstaan van de promotiecommissie van de Faculteit der Economische Wetenschappen en Bedrijfskunde op donderdag 14 september 2017 om 11.45 uur in de aula van de universiteit, De Boelelaan 1105 door Aloysius Gunadi Brata geboren te Baturaja, Indonesië promotoren : prof.dr. Henri L.F. de Groot prof.dr. Piet Rietveld (†) copromotor : dr. Wouter Zant CONTENTS Contents i List of Figures iv List of Tables v Preface vii 1 Introduction 1 1.1 Motivation 1 1.2 Theoretical Background 3 1.3 Aim and Structure of the Thesis 7 2 The Krakatoa Eruption in 1883: Its Implications for the Spatial Distribution of Population in Java 11 2.1 Introduction 11 2.2 The Krakatoa Eruption and Economic Development in Java 15 2.2.1 The Eruption of Krakatoa in August 1883 15 2.2.2 A Brief Story of Economic Development in Colonial Java 18 2.2.3 Population Growth in Java during 1880−1890 22 2.3 The Impact of the Krakatoa Eruption 26 2.3.1 Model Specification and Results 26 2.3.2 Sensitivity Analysis 33 2.4 Conclusion 36 Appendix 2.A Data Sources 38 i ii 3 The Impact of the Indian Ocean Tsunami and the Nias Earthquake on the Spatial Distribution of Population in Northern Sumatra 41 3.1 Introduction 41 3.2 Framework to Study the Impact of the Twin Disasters 45 3.2.1 The Spatial Aspect of Disasters on Population Growth 47 3.2.2 Other Relevant Variables 51 3.3 Results and Discussion 54 3.3.1 Relative Position of the Highly Affected Regions after the Twin Disasters 54 3.3.2 Estimating the Impact of the Disasters on Population Growth 56 3.3.3 Patterns of Post-disaster Population Growth: An Illustration 63 3.4 Conclusion 65 Appendix 3.A Data Sources 67 4 The Local Economic Growth Impact of the 2006 Yogyakarta Earthquake 69 4.1 Introduction 69 4.2 Theoretical Framework 72 4.3 An Overview of the 2006 Yogyakarta Earthquake 76 4.4 Investigating the Economic Impact of the Earthquake 79 4.4.1 The Inter-temporal Impacts 82 4.4.2 The Sectoral Spillover Impacts 85 4.4.3 The Spatial Spillover Impacts 88 4.4.4 The Overall Impact of the Eartquake on Economic Growth 91 4.5 Conclusion 95 5 Shaking Up the Firm’s Survival: Evidence from Yogyakarta (Indonesia) 97 5.1 Introduction 97 5.2 Literature Review 99 5.3 Dynamics of Firm Survival 103 5.4 Dynamics of Firm Productivity 105 5.5 Determinants of Firm Survival 112 5.6 Conclusion 122 iii 6 Living with the Merapi Volcano: Risks and Disaster Microinsurance 123 6.1 Introduction 123 6.2 Literature Review 125 6.2.1 Perception of Risks Related to Location 125 6.2.2 Other Determinants of Disaster Microinsurance Demand 127 6.3 Research Methodology 130 6.3.1 Data Sources 130 6.3.2 Constructing Indicators of Disaster Risk 131 6.3.3 Data Related to Demand for Disaster Microinsurance 134 6.3.4 Logit Model 137 6.4 Peoples’ Response to Disaster Microinsurance 139 6.4.1 Description 139 6.4.2 Determinants of Response to Disaster Microinsurance 142 6.5 Conclusion 147 7 Conclusion 149 7.1 Introduction 149 7.2 Summary of the Empirical Results 150 7.3 Policy Implications 152 7.4 Suggestion for Further Research 153 References 155 Samenvatting (Summary in Dutch) 173 iv LIST OF FIGURES Figure 1.1 Structure of the Thesis 7 Figure 2.1 The Extent of Maximum Inundation from the Tsunami(s) Generated by the Krakatoa Eruption 1883 16 Figure 2.2.A The Persistence of the Spatial Distribution of Population (Share-A) 32 Figure 2.2.B The Persistence of the Spatial Distribution of Population (Share-B) 33 Figure 2.3.A The Persistence of the Spatial Distribution of Population (log-A) 35 Figure 2.3.B The Persistence of the Spatial Distribution of Population (Share-B) 36 Figure 3.1 Population Growth in Selected Regions 64 Figure 3.2 Population Density Growth in Selected Regions 65 Figure 4.1 Four Scenarios of the Long-run Growth Impact of Natural Disasters 73 Figure 4.2 The 2006 Yogyakarta Earthquake 76 Figure 4.3 Growth of GRDP 80 Figure 4.4 The Overall Impact on Local Economic Growth 93 Figure 5.1A Distribution of Firms Based on their Productivity Level (All Firms), 2003 and 2005 109 Figure 5.1B Distribution of Firms Based on their Productivity Level (All Firms), 2007 and 2009 110 Figure 5.2 Distribution of Firms Based on their Productivity Level (Surviving Firms) 111 Figure 5.3 Distribution of Firms Based on their Productivity Level (New Entrants) 112 Figure 6.1 Merapi Hazard Map 2011 132 Figure 6.2 Simulated Probabilities to Participate in Disaster Microinsurance 146 v LIST OF TABLES Table 2.1 Impact of the Krakatoa Eruption in 1883 17 Table 2.2 Population Growth and Its Components 1880–1890 23 Table 2.3 The Short-run Impact of the Eruption 29 Table 2.4 The Long-run Impact of the Eruption 30 Table 2.5 The Short-run Impact of the Eruption (Sensitivity Test) 34 Table 2.6 The Long-run Impact of the Eruption (Sensitivity Test) 34 Table 3.1 Impact of the Twin Disasters in Aceh and Nias 43 Table 3.2 Rank in Population Size and Population Growth of Highly Affected Regions 55 Table 3.3 Coefficient of Variation of Population and Population Density 56 Table 3.4 Descriptive Statistics 57 Table 3.5 Instrumental Variable Equation 58 Table 3.6 Basic Estimates of Population Growth 59 Table 3.7 Extended Estimates of Population Growth 60 Table 4.1 Human and Housing Impacts of the Yogyakarta Earthquake 77 Table 4.2 The Inter-temporal Impacts of the Earthquake 83 Table 4.3 The Sectoral Spillover Impacts of the Earthquake 87 Table 4.4 The Spatial Spillover Impacts of the Earthquake (A) 89 Table 4.5 The Spatial Spillover Impacts of the Earthquake (B) 90 Table 5.1 Growth of Gross Regional Domestic Product in Yogyakarta Province 98 Table 5.2 The Dynamics of Firms Survival 104 Table 5.3 Size and Labour Productivity of Different Groups of Firms 106 Table 5.4 Preceding Labour Productivity of Exiting and Surviving Firms 108 Table 5.5 Normality Test of Labour Productivity of Different Groups of Firms 108 Table 5.6 Determinants of Firm Survival (Basic estimation) 116 Table 5.7 Determinants of Firm Survival (Alternative estimation: normalised productivity) 120 Table 5.8 Determinants of Firm Survival (Alternative earthquake indicator) 121 vi Table 6.1 Pre-eruption Place of Residence: Experts’ Assessment and Respondents’ Perception 133 Table 6.2 Definition and Questions Related to the Knowledge of Insurance and Participation in Disaster Microinsurance 135 Table 6.3 Main Concerns Related to the Impact of the Eruption 140 Table 6.4 Risk Assessments and Response to Disaster Microinsurance 140 Table 6.5 Response to Disaster Microinsurance Based on Insurance Literacy 141 Table 6.6 Reasons for Not Being Interesting to Participate in Disaster Microinsurance 142 Table 6.7 Summary Statistics 143 Table 6.8 Determinants of Participation in Disaster Microinsurance 144 vii PREFACE I would like to express my sincere gratitude to my supervisors Henri de Groot, Piet Rietveld (†), and Wouter Zant for their immense knowledge, excellent guidance, and patience. I learnt plenty from this long journey. I would like also to confess that Pak Piet is the person who gave me a ‘second chance’ to pursue a PhD trajectory at the Vrije Universiteit Amsterdam. I am also deeply grateful to the members of my thesis committee: Ari Kuncoro, Harry Garretsen, Jan Luiten van Zanden, Peter van Bergeijk, and Jan Rouwendal, for reading and commenting on my thesis. My sincere appreciation goes to Budy Resosudarmo, who shared a survey data set, and was involved in writing Chapter 6. My acknowledgement also goes to the DIKTI for providing financial support for my PhD studies.