Reconstruction following Destruction: Entrepreneurship in the Aftermath of a Natural Disaster

Little is known about the impact on small-scale enterprises of a large negative shock that destroys assets and disrupts local markets. We document the short- and long-run impacts of the 2004 Indian Ocean tsunami using longitudinal household survey data. We leverage topography-driven variation in exposure to the tsunami in coastal Aceh and North Sumatra, Indonesia. There are large short-run declines in business ownership, real profits, and real business assets among those exposed to the tsunami relative to comparison individuals who were not directly exposed. The gap in ownership rates disappears within two years in the non-agricultural sector but persists for 15 years in the agricultural sector. Profits and business assets of the exposed remain substantially lower through the long-term. Tsunami exposure led to increased short-duration transitions into and out of business ownership. Housing aid is linked to higher rates of non-agricultural business ownership and profits.