Natural Resource Shocks and Fertility in Indonesia
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Drill, Baby, Drill: Natural Resource Shocks and Fertility in Indonesia Margaret E. Brehm∗1 and Paul A. Brehm*1 1Oberlin College August 11, 2021 Please click here for the most recent version. Abstract We find that positive natural resource shocks lead to increased fertility in Indonesia by ex- ploiting temporal variation in world oil prices and cross-sectional variation in oil endowments across regencies. The fertility results are driven by women of all ages, by both first and higher order births, and we find no evidence of changes in birth spacing. Altogether, this indicates an increase in completed fertility. We present empirical evidence and cite prior literature demon- strating corresponding increases in households' economic outcomes, consistent with positive income effects on fertility in a developing economy. We also find evidence of an increase in the likelihood of a male birth among older women, suggesting that some of the increase in total fertility among older women is driven by averted fetal losses. JEL Classification Codes: J13, J24, Q31, Q33, R2 Keywords: Natural Resource Shocks, Income Effects, Fertility, Sex Ratios *Department of Economics, Oberlin College and Conservatory, 233 Rice Hall, Oberlin, OH 44074; email [email protected] (corresponding author) and [email protected]. We thank Traviss Cassidy for data assis- tance, Martin Saavedra for title assistance, and Natsumi Osborn, Anna Slebonick, Sun Moon, Juliet Flam-Ross, and Joe Schermer for excellent research assistance. We also thank two anonymous referees for helpful comments and sug- gestions. Some data used in this project was made available through the Minnesota Population Center. The authors wish to acknowledge the statistical office, BPS (Statistics Indonesia), that provided the underlying data making this research possible. We also acknowledge funding from Oberlin College for data from Rystad Energy. All errors are our own. 1 1 Introduction We use the natural experiment of local resource booms and busts in Indonesia as an oppor- tunity to study the response of family formation outcomes to economic conditions. Our analysis is motivated by several studies documenting the effects of resource booms on wage and employment growth (Black et al., 2005; Jacobsen and Parker, 2016; Marchand, 2012; Michaels, 2010), and the long literature studying the relationship between income and wealth and the demand for children (Heckman and Walker, 1990; Clark, 2005; Galor, 2005; Amialchuk, 2013; Bar and Leukhina, 2010; Black et al., 2013; Lindo, 2010; Kearney and Wilson, 2018). In this paper, we estimate the effect of economic shocks through oil booms and busts on fertility using Indonesian Census data from 1970 to 2008. Our analysis compares women's fertility across regions experiencing a more or less severe boom or bust, depending on the local economy's oil intensity. Our identification strategy exploits the interaction between exogenous time series variation in global oil prices and regional variation in resource abundance. For the same change in the world price of oil, regions with more oil experience larger shocks than regions with less oil. Our proxy for resource abundance is the size of preexisting oil endowment in a regency. We argue the economic shocks are independent of unobserved factors correlated with the fertility decision because oil endowments depend on geology and the oil price is set on the world market and exogenous to individuals' fertility decisions. We find that an increase in oil endowment value per capita increases the probability of having a child. The effect is driven by an increase in fertility among women of all ages and by both first and higher parity births. We find no evidence that oil endowment value per capita affects birth spacing. Taken together, these results suggest the overall increase in fertility is not only driven by women having desired children sooner, but also reflects an increase in completed fertility. Because male fetuses are at greater risk of death before birth, we provide indirect evidence of whether the increase in fertility is driven by improvements in fetal health by estimating whether the oil endowment value per capita affects the likelihood of male births.1 We find an increase in the likelihood of a male birth among older women. However, we conclude that the majority of the overall increase in fertility among older women is due to an increase in total fertility, with about one third of the effect among 1Male fetuses have higher miscarriage rates and the sex ratio falls from conception to birth from about 120 male to 100 female conceptions to roughly 105/100 (Kraemer, 2000). 2 older women explained by averted fetal male losses.2 We also explore several mechanisms through which oil shocks may affect fertility. We use supplemental data from Indonesia's labor force surveys, socioeconomic household surveys, and village census to estimate effects of oil endowment value per capita on labor market outcomes, government expenditures, and proxies for infrastructure, economic development, and healthcare access. We find evidence that an increase in the oil endowment value per capita has a positive effect on households' economic outcomes, indicating that a positive income effect is an important mechanism through which fertility responds to oil shocks. Prior work has found both positive and negative relationships between measures of economic prosperity and fertility. In an unpublished manuscript, Cotet Grecu and Tsui (2009) use worldwide discoveries and production of oil to estimate the effect of oil wealth on development, and find some evidence oil abundance positively affects fertility rates. There is also empirical evidence of a negative relationship between income and fertility using time-series data; several papers have documented the link between higher incomes as a result of the industrial revolution and significant declines in fertility (the \Fertility Transition" or \Demographic Transition") (Clark, 2005; Galor, 2005; Jones and Tertilt, 2008; Bar and Leukhina, 2010). Heckman and Walker (1990) and Schultz (1985) provide evidence of a negative relationship between incomes and fertility due to higher women's wages and a substitution effect. Finally, a general finding using cross-country data is a clear negative relationship between income and fertility (e.g., Dasgupta, 1995). More recent work has sought to identify causal effects using exogenous shocks to male income created by the 1970's West Virginia coal boom, local-area fracking production, or job displacement to estimate the income effect on fertility in the United States (Black et al., 2013; Kearney and Wilson, 2018; Lindo, 2010; Amialchuk, 2013). Lovenheim and Mumford (2013) and Dettling and Kearney (2014) use wealth shocks driven by housing market variation in the United States to estimate the effect of family resources on fertility. Schaller (2016) and Autor et al. (2018) show shocks to mens' labor market demand are associated with changes in fertility in the United States. These papers find positive income effects on births and that changes in male labor market conditions and fertility move in tandem. Our results are consistent with these findings. We contribute to the existing literature by demonstrating positive natural resource shocks 2Point estimates suggest it is between roughly 21 percent and 43 percent. 3 lead to increased fertility and providing additional evidence that our findings are consistent with positive income effects and children being normal goods. Our findings are interesting in light of de- clining fertility rates during demographic transitions and the negative cross-country income-fertility relationship. Our paper builds on related prior work in the US in several key ways. Most impor- tantly, Indonesia is a very different context from the United States; local economies in Indonesia depend to a larger extent on natural resources and the United States is considerably wealthier. We also provide evidence that the overall increase in fertility is explained mostly by an increase in total fertility, with no changes in birth spacing and with some of the effect among older women explained by averted miscarriages. This latter finding provides indirect evidence of the role of improved maternal and fetal health in estimates of increases in fertility rates and is consistent with prior work showing external stressors, including job loss and economic contraction, are related to the proportion of male births (Sanders and Stoecker, 2015; Halla and Zweim¨uller,2014; Catalano et al., 2010; Mathews et al., 2008; Catalano, 2003). The existing literature on economic shocks and fertility has not yet explored the role of improved fetal health in estimated increases in fertility rates. The setting and data availability also confer two uncommon advantages onto our analysis. Our long sample period (1970-2008) allows us to consider the effects of multiple booms and busts, and whether there are symmetric responses. Additionally, our data directly identifies women who did and did not migrate, allowing us to rule out bias in our estimates from selective migration. There is also a large literature studying the effects of resource booms and supply-side shocks on a variety of outcomes, including wages, income, and employment (Allcott and Keniston, 2017; Black et al., 2005; Feyrer et al., 2017; Munasib and Rickman, 2015; Bartik, Currie, Greenstone, and Knittel, Bartik et al.; Maniloff and Mastromonaco, 2017; Weber, 2014; Paredes et al., 2015; Cust et al., 2019), education (Løken, 2010; Cascio and Narayan, 2015; Marchand et al., 2015), housing values (Muehlenbachs et al., 2015), spending (Acemoglu et al., 2013), crime (James and Smith, 2017), and civil conflict and political violence (Angrist and Kugler, 2008; Dube and Vargas, 2013; Cotet and Tsui, 2013a) and growth (Cotet and Tsui, 2013b). There is some work on resource booms specifically in the Indonesian context. Cassidy (2020) studies district fiscal responses to shared revenue from local oil and gas production in Indonesia, exploiting a policy reform and variation in resource endowments. Cust et al. (2019) find positive effects of oil and gas \windfalls" 4 in Indonesia on employment, wages, and labor productivity.