Natural Disasters and Economic Growth in Indonesia

Abstract

This research examines the relationship between natural disasters and economic growth in Indonesia. The study utilizes secondary data spanning from 1990 to 2021 and employs a dynamic approach utilizing the Fully-Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS), and Canonical Co-Integrating Regression (CCR) methods, as well as a causal approach utilizing the Vector Error Correction Model (VECM) method. The findings provide insights into the relationship between natural disasters and economic growth in Indonesia, highlighting the significant long-term impact of natural disasters on economic growth. Moreover, the analysis uncovers a unidirectional causality from natural disasters to economic growth, emphasizing the influence of natural disasters on the country's economic performance. The results highlight the need for strategies from policymakers that focus on investing in upgrading and retrofitting existing infrastructure to withstand natural disasters, especially in key sectors such as transportation, energy, water, and telecommunications to minimize disruptions and enable faster economic recovery, as well as promote small and medium-sized enterprises (SMEs) by providing incentives and support for their growth, as they are often more adaptable and resilient in the face of economic shocks.