The Impact of Natural Disasters and Macroeconomic Determinants on Economic Growth in Indonesia: Analysis of Time-Series Data From 1960 To 2024

Abstract

Aims: This study examines the long-run and short-run effects of natural disasters on economic growth in Indonesia and assesses whether natural disasters impose persistent constraints on long-term economic performance through macroeconomic transmission channels. Study Design: This study adopts a quantitative time-series econometric design using a Vector Error Correction Model (VECM). Place and Duration of Study: The study focuses on Indonesia and uses annual macroeconomic data from 1960 to 2024. Methodology: Annual time-series data were obtained from the World Bank’s World Development Indicators. Economic growth is measured by real GDP, whereas natural disasters are proxied by the number of people affected. Control variables include capital formation, labor force, foreign direct investment, trade openness, government expenditure, and population. Unit root tests were conducted to assess the stationarity of the variables, followed by Johansen cointegration tests to determine the presence of long-run equilibrium relationships. A Vector Error Correction Model was then estimated to analyze both long-run relationships and short-run dynamics among the variables. Results: All variables are integrated of order one and cointegrated, indicating a stable long-run relationship. Natural disasters have a statistically significant negative effect on long-term economic growth, while short-run effects are insignificant, indicating that natural disasters do not instantaneously alter the growth trajectory but instead influence economic growth through long-term adjustments. Capital formation, government expenditure, trade openness, and population growth positively influence long-run economic performance, and the significant negative error-correction term confirms gradual adjustment toward the long-run equilibrium. Conclusion: Natural disasters impose a significant long-run constraint on economic growth in Indonesia, despite having no statistically significant short-run effects. Strengthening disaster risk reduction and macroeconomic resilience is therefore essential to reduce long-term economic losses.