External Shocks, Household Consumption and Fertility in Indonesia

This paper examines the impact of idiosyncratic income shocks on household consumption,educational expenditure and fertility in Indonesia, and assesses whether the investment inhuman capital of children and fertility are used to smooth household consumption. Usingsix different kinds of self-reported economic hardships, our findings indicate that copingmechanisms are rather efficient for Indonesian households that perceive an economichardship. Only in case of unemployment we find a significant decrease in consumptionspending and educational expenditure while fertility increases. Theses results indicate thathouseholds that perceive an unemployment shock use children as a means for smoothingconsumption. Regarding the death of a household member or natural disaster we find thatconsumption even increases. These results are consistent with the argument that copingmechanisms even over-compensate the actual consumption loss due to an economichardship. One important lesson from our findings is that different types of income shockmay lead to different economic and demographic behavioral adjustments and thereforerequire specific targeted social insurance programs