The Impact of Natural Disasters on Income Inequality in Indonesia

Abstract

Introduction: The purpose of this study is to investigate the relationship between natural disasters and income inequality in Indonesia, a developing country with a high risk of natural hazards and high population densities in disaster-prone regions. Methods: This paper used cross-province panel data during the period between 2010 and 2016. Natural disasters data were obtained from Indonesia National Agency for Disaster Management (BNPB), while Gini index data as an indicator of income inequality were obtained from Indonesia Central Bureau of Statistics (BPS). To estimate the impact of natural disasters on income inequality, this paper used a fixed effect regression model. Results: It was found that the lagged variable of natural disasters positively affected the Gini index. The coefficient of this variable was 0.0093 at a significance level of 5%. It indicated that natural disasters worsen income inequality. This study also showed that natural disasters that negatively affected the Gini index were hydrological disasters in year t (between  -0.0179 and -0.0199 at a significance level of 0.1%).  Meanwhile, meteorological disasters tended to increase income inequality in the subsequent years. The coefficients were 0.0282 and 0.0187, and were statistically significant at least 5%. In addition, meteorological disasters consistently affected income distribution in all Western Indonesia (Sumatra, Java, and Bali) and other islands. The coefficients were 0.0205 and 0.0510 at a significance level of 5% indicating that meteorological disasters tended to increase inequality in income distribution. But these climatological disasters had a negative impact on income distribution in other islands in years t and t-1 (-0.0192 and -0.0680 at the significance level of 1% and 5%, respectively).  Conclusion: The findings of this study imply that designing policies to deal with inequality at the regional level should also concern the different influences of various natural disasters on income inequality.