The Effect of Natural Disasters at the Rural Level on Economic Growth: Evidence from Indonesia

This study examines the effect of natural disasters on economic growth using annual village potential data (PODES) from 33 provinces in Indonesia. Several panel data models, namely Fixed Effect, Random Effect, Robust Fixed Effect, and Generalized Method of Moments (GMM), were tested to ensure robustness. The Robust fixed-effect model was ultimately selected as the most appropriate specification. The result finds that natural disasters, along with government spending on capital, labor, and technology, have a positive effect on economic growth. However, capital depreciation does not show a statistically significant impact. Among all provinces, East Nusa Tenggara consistently recorded the highest proportion of disaster-affected villages from 2011 to 2017. These findings suggest the importance of enhancing disaster mitigation policies to reduce the intensity and coverage of disaster impacts on rural development.