Estimating Returns to Capital and Ability : Evidence from a Natural Experiment

This paper estimates economic returns to physical capital and inherent ability among Indonesian fishermen using a natural experiment. By exploiting the quasi-random variation in the length of fishing boats generated by an aid program among survivors of the 2004 Indian Ocean tsunami, it is found that the relative contribution of inherent ability and physical capital in explaining long run productivity vary over time. Indonesian fishermen who were relatively more productive before the disaster retain their productive edge ex-post, controlling for the receipt and quality of aid, as well as fishing conditions. Returns to innate ability, measured by ex-ante productivity, become more important over time; while returns to physical capital become less important