Returns to Capital and Ability: A Natural Experiment in Aceh, Indonesia

TL;DRAbstract

In this paper, I examine the short- and medium-run economic returns to capi-tal and inherent ability by studying the recovery of fishermen in Aceh, Indonesia, from the 2004 Indian Ocean tsunami. Since the natural disaster wiped out a sig-nificant portion of productive physical capital among fishermen, the subsequent quasi-random infusion of aid boats generates a natural experiment. Using panel data from fishing households, I first examine whether boat aid increases overall productivity. Second, I investigate whether fishermen who were relatively more productive pre-tsunami retain their productive edge ex-post. Focusing on the sample of fishermen who lost their pre-tsunami boats, I find that the impact of aid boat length on fishing revenue is positive but diminishes over time. In contrast, I find that the impact of pre-tsunami productivity on fishing revenue increases. These results suggest that (i) returns to inherent ability, measured by pre-tsunami productivity, are more important th

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