Collections > Electronic Theses and Dissertations > Are Children Normal or Inferior Goods? Evidence from Indonesia’s Financial Crisis of 1997

The purpose of this dissertation is to provide insight into an individual family's fertility response to a short term financial shock. As economies develop, the number of children born in a household decreases at both the inter and intra-country level. This paper examines a household's fertility response to a short run financial shock where there are no confounding effects of economic development present in the decision making process. Micro-economic theory defines income elasticity as: the percentage change in the quantity of a good given a percentage change in income, holding all else constant; previous examinations of income elasticity of the demand for children fail to hold child quality constant. I develop a theoretical economic framework to motivate an empirical model containing seven equations which predict the probability of conception while controlling for family size, women’s education and employment, marital status, income, and consumption. The model is estimated using longitudinal data from waves 2 and 3 of the Indonesian Family Life Survey (IFLS), which spanned the Asian financial crisis. With this micro-level economic and socio-demographic data, I identify changes in fertility behavior in response to individual and household financial shocks, measured by changes in per capita expenditure and household income. Results indicate a slight decline in fertility at the onset of the crisis, followed by an increase in fertility during the crisis. Household income exerts no effect on the probability of conception, while per-capita consumption exerts a negative, but insignificant effect. Households which experience some hardship show declines in the probability of conception. Over the four years spanning the Asian financial crisis, children are indicated as neither inferior nor normal goods. The effects of other children in the household, the mother's age, and marital status are the more dominant predictors of fertility; therefore, I conclude that although household economy changes impact fertility, cultural factors and permanent economic factors are a better predictor of fertility than short run financial shocks.