Sri Lankan households a decade after the Indian Ocean tsunami

This study estimates the causal effect of the 2004 Indian Ocean tsunami on household consumption and income in Sri Lanka 8 years after the event, using a difference‐in‐differences methodology and extensive household survey data. The analysis finds a strong association between the area‐wide tsunami disaster shock and increases in household income and consumption in the long term. The increase in consumption is much smaller than the observed increase in income; while the increase in income is mostly observed in nonagricultural wage income (and a decline in agricultural income). We also find that households in high‐income regions and lower‐damage districts experienced a much better recovery, in terms of income, than those in poorer regions or those districts that experienced more destruction. Deviating from the common observation on short‐term adverse impacts of catastrophic disasters in low‐ and middle‐income countries, these results are suggestive of a potential for long‐lasting and more successful recovery scenarios. Still, Sri Lanka received a very large amount of external assistance post‐tsunami—an amount that may not be replicable elsewhere. It is likely that this massive inflow of assistance, further helped by the end of the armed conflict in 2009, has contributed significantly to this relatively successful recovery.