The two-stage least squares simultaneous equation model for panel data on human development, economics, and environmental quality

Abstract

The concept of three-dimensional sustainable development requires every country to increase economic growth by using natural resources rationally by considering environmental and social quality as a determinant of public welfare. In Indonesia, there has not been a balance between the three dimensions, for example, DKI Jakarta Province has high economic growth and Human Development Index (HDI), but Environmental Quality Index (EQI) is the worst. Whereas Papua and West Papua have good environmental quality but are not supported by good HDI. Efforts in sustainable development are planned that integrate environmental, social, and economic aspects in development strategies. Therefore, this study used the BPS Statistics-Indonesia data for analyzing the causality between economy, environment, and human development in 33 provinces of Indonesia, from 2013 to 2017. By using the simultaneous equation of the panel data (2SLS) method, it results show that there is a positive simultaneous relationship between HDI, economic growth, and environmental quality. The Variables that influence economic growth are HDI and Foreign Direct Investment (FDI). Variables that influence environmental quality are economic growth, HDI, FDI, and population, while in human development are economic growth, EQI, and poverty. Human development has a big contribution to the implementation of sustainable development in Indonesia.