Economic Growth and Environmental Degradation in Indonesia: The Roles of Investment, Inflation, Income Inequality, Fossil Consumption, and Poverty

Abstract

This research aims to examine the relationship between economic growth and environmental degradation in Indonesia during the 1984-2022 period by using a simultaneous equation approach. Furthermore, this study considers several determinants, which consist of investment, inflation, income inequality, fossil consumption and poverty. This relationship is worth studying, especially in relation to Indonesia because Indonesia is one of the developing countries that is trying to achieve sustainable development as agreed in the sustainable development goals. The findings of this study include economic growth affecting environmental degradation by 1.15 percent and environmental degradation affecting economic growth by 2.41 percent. Furthermore, economic growth was strengthened by investment and weakened by inflation and income inequality. Then, environmental degradation is reinforced by income inequality, consumption of fuel oil and poverty. This study recommends that the government implement a sustainable development policy with the principle of meeting the needs of the present without sacrificing meeting the needs of future generations.