Exploring the Interrelationship Between Economic Growth, Investment, and CO2 Emissions in Indonesia: A Time-Series Approach

Nano Prawoto

doi:10.56403/nejesh.v4i1.255

Authors

Nano Prawoto Universitas Muhammadiyah Yogyakarta

DOI:

https://doi.org/10.56403/nejesh.v4i1.255

Keywords:

CO2 emissions, ecm model, economic growth, oil consumption

Abstract

This study aims to analyze the influence of economic growth, investment, industrial added value, trade value, and oil consumption on CO2 emissions in Indonesia in the period 1987-2019, before the COVID-19 pandemic. In addition, this study also considers the role of government policies in regulating carbon emissions and mitigating negative impacts on the environment. The method used in this study is the ECM (Error Correction Model) regression approach. The results show that in the long term, economic growth, industrial value-added, and oil consumption have a positive effect on increasing CO2 emissions in Indonesia, while investment (GFCF) and trade value have a negative effect on CO2 emissions. In the short term, industrial value added, and trade value have no significant effect on CO2 emissions, while economic growth and oil consumption encourage an increase in CO2 emissions. Investment (GFCF) contribute to the reduction of CO2 emissions. Indonesian government policies that focus on reducing carbon emissions through regulations that support renewable energy and energy efficiency, as well as controlling oil consumption, are expected to accelerate the transition to a low-carbon economy. The implication of these findings is that more assertive and integrated policies between the economic and environmental sectors are needed to effectively reduce CO2 emissions, while supporting economic growth and industrialization.

References

Akhmad, A., & Amir, A. (2018). Study of fuel oil supply and consumption in Indonesia. International Journal of Energy Economics and Policy, 8(4), 13-20. https://www.econjournals.net.tr/index.php/ijeep/article/view/6448

Akram, R., Umar, M., Xiaoli, G., & Chen, F. (2022). Dynamic linkages between energy efficiency, renewable energy along with economic growth and carbon emission. A case of MINT countries an asymmetric analysis. Energy Reports, 8, 2119-2130. https://doi.org/10.1016/j.egyr.2022.01.153

Alam, M. M., Murad, M. W., Noman, A. H. M., & Ozturk, I. (2016). Relationships among carbon emissions, economic growth, energy consumption and population growth: Testing Environmental Kuznets Curve hypothesis for Brazil, China, India and Indonesia. Ecological Indicators, 70, 466-479. https://doi.org/10.1016/j.ecolind.2016.06.043

Alam, M. S., & Paramati, S. R. (2015). Do oil consumption and economic growth intensify environmental degradation? Evidence from developing economies. Applied economics, 47(48), 5186-5203. https://doi.org/10.1080/00036846.2015.1044647

Alkhathlan, K., & Javid, M. (2015). Carbon emissions and oil consumption in Saudi Arabia. Renewable and Sustainable Energy Reviews, 48, 105-111. https://doi.org/10.1016/j.rser.2015.03.072

Avenyo, E. K., & Tregenna, F. (2022). Greening manufacturing: Technology intensity and carbon dioxide emissions in developing countries. Applied energy, 324, 119726. https://doi.org/10.1016/j.apenergy.2022.119726

Aye, G. C., & Edoja, P. E. (2017). Effect of economic growth on CO2 emission in developing countries: Evidence from a dynamic panel threshold model. Cogent Economics & Finance, 5(1), 1379239. https://doi.org/10.1080/23322039.2017.1379239

Barreto, R. A. (2018). Fossil fuels, alternative energy and economic growth. Economic Modelling, 75, 196-220. https://doi.org/10.1016/j.econmod.2018.06.019

Basuki, A. T., & Prawoto, N. (2019). Analisis Regresi: dalam Penelitian Ekonomi dan Bisni. Depok: Rajagrafindo Persada.

Bildirici, E. M., & Bakirtas, T. (2016). The relationship among oil and coal consumption, carbon dioxide emissions, and economic growth in BRICTS countries. Journal of Renewable and Sustainable Energy, 8(4). https://doi.org/10.1063/1.4955090

Cassar, I. P. (2015). Estimates of output, income value added and employment multipliers for the Maltese economy (No. WP/03/2015). CBM Working Papers. https://www.econstor.eu/handle/10419/210811

Covert, T., Greenstone, M., & Knittel, C. R. (2016). Will we ever stop using fossil fuels? Journal of Economic Perspectives, 30(1), 117-138. https://www.aeaweb.org/articles?id=10.1257/jep.30.1.117

Damodar, N. G. (2021). Basic econometrics.

Dauda, L., Long, X., Mensah, C. N., & Salman, M. (2019). The effects of economic growth and innovation on CO 2 emissions in different regions. Environmental Science and Pollution Research, 26, 15028-15038. https://doi.org/10.1007/s11356-019-04891-y

Dissanayake, S., Mahadevan, R., & Asafu-Adjaye, J. (2020). Evaluating the efficiency of carbon emissions policies in a large emitting developing country. Energy Policy, 136, 111080. https://doi.org/10.1016/j.enpol.2019.111080

Enders, W., & Li, J. (2015). Trend-cycle decomposition allowing for multiple smooth structural changes in the trend of US real GDP. Journal of Macroeconomics, 44, 71-81. https://doi.org/10.1016/j.jmacro.2015.02.002

Endriana, L., Hartono, D., & Irawan, T. (2016). Green economy priority sectors in Indonesia: a SAM approach. Environmental Economics and Policy Studies, 18, 115-135. http://www.unep.org/greeneconomy/AdvisoryServices/Indonesia/tabid/56278/Default.aspx

Fais, B., Sabio, N., & Strachan, N. (2016). The critical role of the industrial sector in reaching long-term emission reduction, energy efficiency and renewable targets. Applied Energy, 162, 699-712. https://doi.org/10.1016/j.apenergy.2015.10.112

Fankhauser, S., & Jotzo, F. (2018). Economic growth and development with low‐carbon energy. Wiley Interdisciplinary Reviews: Climate Change, 9(1), e495. https://doi.org/10.1002/wcc.495

Granger, C. W. J. (2004). Time series analysis, cointegration, and applications. American Economic Review, 94(3), 421-425. https://doi.org/10.1257/0002828041464669

Gregoriou, A., & Kontonikas, A. (2010). The long-run relationship between stock prices and goods prices: New evidence from panel cointegration. Journal of International Financial Markets, Institutions and Money, 20(2), 166-176. https://doi.org/10.1016/j.intfin.2009.12.002

Hao, Y. (2022). The relationship between renewable energy consumption, carbon emissions, output, and export in industrial and agricultural sectors: evidence from China. Environmental Science and Pollution Research, 29(42), 63081-63098. Vol.:(0123456789)1 3 https://doi.org/10.1007/s11356-022-20141-0

Huang, Y., Kuldasheva, Z., Bobojanov, S., Djalilov, B., Salahodjaev, R., & Abbas, S. (2023). Exploring the links between fossil fuel energy consumption, industrial value-added, and carbon emissions in G20 countries. Environmental Science and Pollution Research, 30(4), 10854-10866. https://doi.org/10.1007/s11356-022-22605-9

Huisingh, D., Zhang, Z., Moore, J. C., Qiao, Q., & Li, Q. (2015). Recent advances in carbon emissions reduction: policies, technologies, monitoring, assessment and modeling. Journal of cleaner production, 103, 1-12. https://doi.org/10.1016/j.jclepro.2015.04.098

Hussain, J., Lee, C. C., & Chen, Y. (2022). Optimal green technology investment and emission reduction in emissions generating companies under the support of green bond and subsidy. Technological Forecasting and Social Change, 183, 121952. https://doi.org/10.1016/j.techfore.2022.121952

Indonesia Ministry of Environment and Forestry, 2018

Jiang, X., & Guan, D. (2017). The global CO2 emissions growth after international crisis and the role of international trade. Energy Policy, 109, 734-746. https://doi.org/10.1016/j.enpol.2017.07.058

Johansen, S. (2014). Times Series: Cointegration.

Kozul-Wright, R., & Fortunato, P. (2012). International trade and carbon emissions. The European Journal of Development Research, 24(4), 509-529. https://doi.org/10.1057/ejdr.2012.15

Lamb, W. F., Wiedmann, T., Pongratz, J., Andrew, R., Crippa, M., Olivier, J. G., ... & Minx, J. (2021). A review of trends and drivers of greenhouse gas emissions by sector from 1990 to 2018. Environmental research letters, 16(7), 073005. https://doi.org/10.1088/1748-9326/abee4e

Liu, Z., Feng, K., Davis, S. J., Guan, D., Chen, B., Hubacek, K., & Yan, J. (2016). Understanding the energy consumption and greenhouse gas emissions and the implications for achieving climate change mitigation targets. Applied Energy, 184, 737-741. https://doi.org/10.1016/j.apenergy.2016.10.110

López‐Manuel, L., Vázquez, X. H., & Sartal, A. (2023). Firm, industry, and country effects on CO2 emissions levels. Business Strategy and the Environment, 32(6), 3965-3976. https://doi.org/10.1002/bse.3348

Mahmood, H. (2022). The effects of natural gas and oil consumption on CO2 emissions in GCC countries: asymmetry analysis. Environmental Science and Pollution Research, 29(38), 57980-57996. https://www.proquest.com/scholarly-journals/effects-natural-gas-oil-consumption-on-co-sub-2/docview/2705207835/se-2?accountid=187856

Paraschiv, S., & Paraschiv, L. S. (2020). Trends of carbon dioxide (CO2) emissions from fossil fuels combustion (coal, gas and oil) in the EU member states from 1960 to 2018. Energy Reports, 6, 237-242. https://doi.org/10.1016/j.egyr.2020.11.116

Pollock, S. (2008). The classical econometric model. In The Practice of Econometrics: Studies on Demand, Forecasting, Money and Income (pp. 247-262). Dordrecht: Springer Netherlands.

Ramadhan, M. L., Nugraha, F., Prastowo, D. A., Kusumawardhani, A., & Raharjo, S. T. (2024). Development of environmentally friendly technology for key industries in achieving golden indonesia. Research Horizon, 4(4), 205-220. https://lifescifi.com/journal/index.php/RH/article/view/327

Saidi, K., & Hammami, S. (2015). The impact of CO2 emissions and economic growth on energy consumption in 58 countries. Energy Reports, 1, 62-70. https://doi.org/10.1016/j.egyr.2015.01.003

Shaari, M. S., Abdul Karim, Z., & Zainol Abidin, N. (2020). The effects of energy consumption and national output on CO2 emissions: new evidence from OIC countries using a panel ARDL analysis. Sustainability, 12(8), 3312. https://doi.org/10.3390/su12083312

Shahzad, M., Qu, Y., Rehman, S. U., & Zafar, A. U. (2022). Adoption of green innovation technology to accelerate sustainable development among manufacturing industry. Journal of Innovation & Knowledge, 7(4), 100231. https://doi.org/10.1016/j.jik.2022.100231

Spampatti, T., Hahnel, U. J., Trutnevyte, E., & Brosch, T. (2022). Short and long-term dominance of negative information in shaping public energy perceptions: The case of shallow geothermal systems. Energy Policy, 167, 113070. https://doi.org/10.1016/j.enpol.2022.113070

Tariq, G., Sun, H., Ali, I., Pasha, A. A., Khan, M. S., Rahman, M. M., ... & Shah, Q. (2022). Influence of green technology, green energy consumption, energy efficiency, trade, economic development and FDI on climate change in South Asia. Scientific reports, 12(1), 16376. https://doi.org/10.1038/s41598-022-20432-z

Tian, J., Yu, L., Xue, R., Zhuang, S., & Shan, Y. (2022). Global low-carbon energy transition in the post-COVID-19 era. Applied energy, 307, 118205. https://doi.org/10.1016/j.apenergy.2021.118205

Uzair Ali, M., Gong, Z., Ali, M. U., Asmi, F., & Muhammad, R. (2022). CO2 emission, economic development, fossil fuel consumption and population density in India, Pakistan and Bangladesh: a panel investigation. International Journal of Finance & Economics, 27(1), 18-31. https://doi.org/10.1002/ijfe.2134

Vo, A. T., Vo, D. H., & Le, Q. T. T. (2019). CO2 emissions, energy consumption, and economic growth: New evidence in the ASEAN countries. Journal of Risk and Financial Management, 12(3), 145. https://doi.org/10.3390/jrfm12030145

Wooldridge, J. M. (2016). Introductory Econometrics: A Modern Approach (6th ed.). Cengage Learning.

Wu, Z., Yang, L., Chen, Q., & Ye, Q. (2021). The impacts of international trade on global greenhouse gas emissions: A thought experiment based on a novel no-trade analysis. Journal of environmental management, 300, 113836. https://doi.org/10.1016/j.jenvman.2021.113836

Xu, P., Zhang, J., & Mehmood, U. (2023). How do green investments, foreign direct investment, and renewable energy impact CO2 emissions? Measuring the role of education in E-7 nations. Sustainability, 15(19), 14052. https://doi.org/10.3390/su151914052

Yang, X., & Khan, I. (2022). Dynamics among economic growth, urbanization, and environmental sustainability in IEA countries: the role of industry value-added. Environmental Science and Pollution Research, 29(3), 4116-4127. https://doi.org/10.1007/s11356-021-16000-z

Yao, X., Shah, W. U. H., Yasmeen, R., Zhang, Y., Kamal, M. A., & Khan, A. (2021). The impact of trade on energy efficiency in the global value chain: A simultaneous equation approach. Science of The Total Environment, 765, 142759. https://doi.org/10.1016/j.scitotenv.2020.142759