No.117 Intrageneration Poverty Dynamics in Indonesia: Households' Welfare Mobility Before, During, and After the Asian Financial Crisis

When the economic crisis hit in 1998, and economic growth dropped by 13.7 percent; exacerbated by domestic political turbulence, poverty figures sharply rose from 17.47 percent to 24.20 percent. It began to decline again as the economy quickly recovered from the crisis. The above details demonstrate that poverty is not a pure static phenomenon, but rather is dependent on dynamic characteristics that easily change over time. Households could move into (or out of) poverty in response to fluctuations in the economy. This study then aims to analyze the determinants of households' shifting welfare during the periods before, during and after the Asian financial crisis in Indonesia. Applying the spell approach of poverty experience and observing four waves of IFLS (Indonesian Family Life Survey) balanced panel datasets, we find that during 1993-1997 (pre-crisis) households could be classified as chronically poor (6.14 percent), transient poor (-) (6.31 percent), transient poor (+) (10.58 percent) and never poor (76.96 percent). However, during 1997-2000 (crisis), the probability of being transient poor (-) had jumped drastically from 5 percent (pre-crisis) to 14 percent (during the crisis). In the post crisis period, roughly 86 percent of the previously poor households could move out of poverty. This study also confirmed that the probability of being poor in the next period highly depends on past experiences with poverty. Moreover, reducing probability of being chronically poor by about half from 4.6 percent to 2.2 percent needs almost fifteen years. Furthermore, our estimations using the ordered logit model confirm that determinants of poverty dynamics include educational attainment, size of the household, share of education expenditure, distance to public transportation, ownership of livestock and liquid assets, and the impact suffered from earthquakes.

Keywords: chronic poor, transient poor, poverty dynamics, panel data, Asian financial crisis, Indonesia