Economic shocks, wealth and welfare

PWP-CCPR-2003-009

Abstract

The immediate effects of the Asian crisis on the well-being of Indonesians are examined using the Indonesia Family Life Survey, an on-going longitudinal household survey. There is tremendous diversity in the effect of the shock: for some households, it was devastating; for others it brought new opportunities. A wide array of mechanisms were adopted in response to the crisis. Households combined to more fully exploit benefits of scale economies in consumption. Labor supply increased even as real wages collapsed. Households reduced spending on semi-durables while maintaining expenditures on foods. Rural households used wealth, particularly gold, to smooth consumption.