by Richard Lombardo

Abstract

Entrepreneurship is thought to be the engine of growth in many developing countries. There is, however, a paucity of evidence on the role that entrepreneurship plays in rebuilding economic livelihoods both in the short and longer-term in the aftermath of a large-scale shock. This is an important gap in the literature given the increasing frequency and severity of shocks across the globe. This paper contributes to filling that gap by investigating the evolution of entrepreneurial success following the 2004 Indian Ocean tsunami, a large-scale and unexpected shock. Using longitudinal survey data, the Study of the Tsunami Aftermath and Recovery (STAR), I find large declines in business ownership, profits, and capital for those most exposed to the tsunami that persisted through 10 years following the tsunami. These estimates can be given a causal interpretation under the plausible assumption that exposure to the tsunami can be treated as exogenous after taking into account individual-specific unobserved heterogeneity with fixed effects, including pre tsunami geographical features that drove exposure. Individuals living in rural areas and individuals with the least resources pre-tsunami fared the worst in terms of developing new businesses. However, the massive Build Back Better reconstruction program promoted entrepreneurship. Receipt of housing aid as part of that program is linked to an increase in the development of non-agricultural businesses that spurred gains in real profits.

Professor Duncan Thomas, Faculty Advisor
Professor Michelle Connolly, Faculty Advisor

JEL Codes: D1; H84; L26; Q54

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