Inter-Household Allocations within Extended Households: Evidence from the Indonesia Family Life Survey

Firman Witoelar, Michigan State University

This paper uses the data from two waves of the Indonesia Family Life Survey (IFLS 1997 and 2000) to explore the allocation of resources among households within extended households. We are interested in examining how household consumption changes over the period. Since households break-up over time, an analysis using panel of households consisting of only the original households may be biased to the extent that households break-up non-randomly. Analyzing panel of extended households may therefore be preferable. However the approach assumes that extended households pool their resources. We investigate this issue and our findings reject the income pooling hypothesis within extended households in both static and dynamic specifications. Changes in household's own income matters to changes in household consumption even after controlling for the extended-household fixed-effects. Correcting for measurement error and endogeneity of income using instrumental variables yields similar results.