Environmental Kuznets Curve for Environmental Quality in Indonesia: A Spatial Econometric Approach

The purpose of this study is to examine the Environmental Kuznets Curve (EKC) hypothesis in Indonesia between economic growth and environmental quality by employing panel data for 33 provinces for the period of 2011-2017. We use the Environmental Quality index (EQI) as an integrated environmental indicator, which is composed of Water Quality Index (WQI), Air Quality Index (AQI) and Forest Cover Index (FCI). Moreover, spatial regression models are applied to investigate the dependence of environmental conditions in negihboring areas. The findings are: (1) while the existence of Environmental Kuznets Curve is found for EQI, AQI and FCI, the AQI continues to decrease with the increase in GDP per capita within the ranre of the current levels; (2) the presence of spatial interactions among variables is identified for WQI, AQI and FCI; (3) population density contributes positively to WQI and negatively to AQI. The findings suggest that the government should positively take policy instruments to mitigate a decline in environmetal quality with economic growth. In addition, the government should not rely on the evidence that supports the EKC relationship for a specific single indicator when making a decision on environmental policy. Moreover, spatial effects should be taken into consideration in environmental policy-making process and involving citizens in environmental programs is also suggested.