Microeconomic Adjustments Of Households To Macroeconomic Shocks: Household Level Welfare Impacts Of The Indonesian Economic Crisis

The macroeconomic crisis in Indonesia in the late 1990s reduced real per capita income by 74 percent and increased prices of some food groups by 92-445 percent. Adjustments in the consumption decisions of households during this period was analyzed using SUSENAS data. The data showed a very strong pattern of adjustment in the consumption decisions of households. That is, households substituted away from more expensive food groups to cheaper alternatives. Of the nine food groups examined, per capita consumption declined in seven food groups with largest declines in eggs-milk (38%), fish (20%), and meats (13%). In contrast, consumption of the cheapest food group - tubers, increased by 22 percent. Also, households substituted away from the expensive animal-protein sources to cheaper plant-protein sources. Consumption of legumes increased by 13 percent. Moreover, the proportion of households with positive consumption showed the largest declines in meats (13 percentage points) and eggs-milk (10 percentage points), while it declined the lowest in legumes (0.66 percentage points). On the other hand, the proportion of households with positive consumption actually increased only in tubers. The same pattern is shown by the budget re-allocation of households. An AIDS model that accommodates zero consumption was estimated using Heien-Wessels and Shonkwiler-Yen methods. Variation in the parameter (and elasticity) estimates between the two models is largest in food groups with higher proportion of zero consumption such as in meats, while parameter estimates did not vary significantly in food groups with high proportion of positive consumption such as vegetable and cereals. Welfare analysis shows doubling of the cost of purchasing a bundle of food groups that give the same level of utility as in the pre-crisis period.