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Abstract
This study investigates the effects of economic growth, financial development, trade openness, and energy consumption in Indonesia from 1980 to 2020. The analytical method used is autoregressive distributed lagged (ARDL) modeling. The data for the study is sourced from official websites such as the World Bank, Our World in Data, and British Petroleum. The study findings show that economic growth and energy consumption increase CO2 emissions in Indonesia in both the short and long run. On the other hand, financial development and trade openness significantly reduce CO2 emissions in Indonesia in the long run. In the short run, trade openness also helps decrease CO2 emissions in Indonesia. However, the financial development variable does not significantly impact CO2 emissions in Indonesia in the short run.
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References
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- Bashir, A., Thamrin, K. M., Farhan, M., Mukhlis, M., & Atiyatna, D. P. (2019). The Causality between Human Capital, Energy Consumption, CO2 Emissions, and Economic Growth: Empirical Evidence from Indonesia. International Journal of Energy Economics and Policy, 9(2), 98-104. https://doi.org/10.32479/ijeep.7377
- Bashir, A., Susetyo, D., Suhel, S., & Azwardi, A. (2021). Relationships between urbanization, economic growth, energy consumption, and CO 2 emissions: empirical evidence from Indonesia. The Journal of Asian Finance, Economics and Business, 8(3), 79-90. https://doi.org/10.13106/jafeb.2021.vol8.no3.0079
- Begum, R. A., Sohag, K., Abdullah, S. M. S., & Jaafar, M. (2015). CO2 emissions, energy consumption, economic and population growth in Malaysia. Renewable and Sustainable Energy Reviews, 41, 594–601. https://doi.org/10.1016/j.rser.2014.07.205
- Boutabba, M. A. (2014). The impact of financial development, income, energy and trade on carbon emissions: Evidence from the Indian economy. Economic Modelling, 40, 33–41. https://doi.org/10.1016/j.econmod.2014.03.005
- Cetin, M., Ecevit, E., & Yucel, A. G. (2018). The impact of economic growth, energy consumption, trade openness, and financial development on carbon emissions: empirical evidence from Turkey. Environmental Science and Pollution Research, 25(36), 36589–36603. https://doi.org/10.1007/s11356-018-3526-5
- Dogan, E., & Turkekul, B. (2016). CO2 emissions, real output, energy consumption, trade, urbanization and financial development: testing the EKC hypothesis for the USA. Environmental Science and Pollution Research, 23(2), 1203–1213. https://doi.org/10.1007/s11356-015-5323-8
- Dong, K., Dong, X., & Dong, C. (2019). Determinants of the global and regional CO 2 emissions: What causes what and where? Applied Economics, 51(46), 5031–5044. https://doi.org/10.1080/00036846.2019.1606410
- Dou, Y., Zhao, J., Malik, M. N., & Dong, K. (2021). Assessing the impact of trade openness on CO2 emissions: Evidence from China-Japan-ROK FTA countries. Journal of Environmental Management, 296, 113241. https://doi.org/10.1016/j.jenvman.2021.113241
- Fang, J., Gozgor, G., Lu, Z., & Wu, W. (2019). Effects of the export product quality on carbon dioxide emissions: evidence from developing economies. Environmental Science and Pollution Research, 26(12), 12181–12193. https://doi.org/10.1007/s11356-019-04513-7
- Gozgor, G. (2017). Does trade matter for carbon emissions in OECD countries? Evidence from a new trade openness measure. Environmental Science and Pollution Research, 24(36), 27813–27821. https://doi.org/10.1007/s11356-017-0361-z
- Islam, F., Shahbaz, M., Ahmed, A. U., & Alam, Md. M. (2013). Financial development and energy consumption nexus in Malaysia: A multivariate time series analysis. Economic Modelling, 30, 435–441. https://doi.org/10.1016/j.econmod.2012.09.033
- Katircioğlu, S. T., & Taşpinar, N. (2017). Testing the moderating role of financial development in an environmental Kuznets curve: Empirical evidence from Turkey. Renewable and Sustainable Energy Reviews, 68, 572–586. https://doi.org/10.1016/j.rser.2016.09.127
- Lestari, I. D., Effendi, N., & Priyono, A. F. (2020). Financial Development, Economic Growth, and Environmental Degradation Nexus in ASIAN Emerging Markets. Jurnal Ekonomi Pembangunan, 18(2), 177–189. https://doi.org/10.29259/jep.v18i2.12565
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- Muhammad, B. (2019). Energy consumption, CO2 emissions and economic growth in developed, emerging and Middle East and North Africa countries. Energy, 179, 232–245. https://doi.org/10.1016/j.energy.2019.03.126
- Narayan, P. K. (2005). The saving and investment nexus for China: evidence from cointegration tests. Applied Economics, 37(17), 1979–1990. https://doi.org/10.1080/00036840500278103
- Narayan, P. K., & Smyth, R. (2005). Electricity consumption, employment and real income in Australia evidence from multivariate Granger causality tests. Energy Policy, 33(9), 1109–1116. https://doi.org/10.1016/j.enpol.2003.11.010
- Nasreen, S., & Anwar, S. (2015). The impact of economic and financial development on environmental degradation. Studies in Economics and Finance, 32(4), 485–502. https://doi.org/10.1108/SEF-07-2013-0105
- Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
- Salahuddin, M., Alam, K., Ozturk, I., & Sohag, K. (2018). The effects of electricity consumption, economic growth, financial development and foreign direct investment on CO2 emissions in Kuwait. Renewable and Sustainable Energy Reviews, 81, 2002–2010. https://doi.org/10.1016/j.rser.2017.06.009
- Shahbaz, M., Arouri, M., & Teulon, F. (2014). Short- and long-run relationships between natural gas consumption and economic growth: Evidence from Pakistan. Economic Modelling, 41, 219–226. https://doi.org/10.1016/j.econmod.2014.05.019
- Shahbaz, M., Hye, Q. M. A., Tiwari, A. K., & Leitão, N. C. (2013). Economic growth, energy consumption, financial development, international trade and CO2 emissions in Indonesia. Renewable and Sustainable Energy Reviews, 25, 109–121. https://doi.org/10.1016/j.rser.2013.04.009
- Shahbaz, M., Khraief, N., Uddin, G. S., & Ozturk, I. (2014). Environmental Kuznets curve in an open economy: A bounds testing and causality analysis for Tunisia. Renewable and Sustainable Energy Reviews, 34, 325–336. https://doi.org/10.1016/j.rser.2014.03.022
- Shahbaz, M., Kumar Tiwari, A., & Nasir, M. (2013). The effects of financial development, economic growth, coal consumption and trade openness on CO2 emissions in South Africa. Energy Policy, 61, 1452–1459. https://doi.org/10.1016/j.enpol.2013.07.006
- Shahbaz, M., Nasir, M. A., & Roubaud, D. (2018). Environmental degradation in France: The effects of FDI, financial development, and energy innovations. Energy Economics, 74, 843–857. https://doi.org/10.1016/j.eneco.2018.07.020
- Shahbaz, M., Shafiullah, M., Papavassiliou, V. G., & Hammoudeh, S. (2017). The CO 2 –growth nexus revisited: A nonparametric analysis for the G7 economies over nearly two centuries. Energy Economics, 65, 183–193. https://doi.org/10.1016/j.eneco.2017.05.007
- Wang, S., Li, G., & Fang, C. (2018). Urbanization, economic growth, energy consumption, and CO2 emissions: Empirical evidence from countries with different income levels. Renewable and Sustainable Energy Reviews, 81, 2144–2159. https://doi.org/10.1016/j.rser.2017.06.025
- Zaidi, S. A. H., Zafar, M. W., Shahbaz, M., & Hou, F. (2019). Dynamic linkages between globalization, financial development and carbon emissions: Evidence from Asia Pacific Economic Cooperation countries. Journal of Cleaner Production, 228, 533–543. https://doi.org/10.1016/j.jclepro.2019.04.210
- Zhong, X., Jiang, H., Zhang, C., & Shi, R. (2019). Electricity consumption and economic growth nexus in China: an autoregressive distributed lag approach. Environmental Science and Pollution Research, 26(14), 14627–14637. https://doi.org/10.1007/s11356-019-04699-w
References
Abbasi, F., & Riaz, K. (2016). CO2 emissions and financial development in an emerging economy: An augmented VAR approach. Energy Policy, 90, 102–114. https://doi.org/10.1016/j.enpol.2015.12.017
Ali, H. S., Law, S. H., & Zannah, T. I. (2016). Dynamic impact of urbanization, economic growth, energy consumption, and trade openness on CO 2 emissions in Nigeria. Environmental Science and Pollution Research, 23(12), 12435–12443. https://doi.org/10.1007/s11356-016-6437-3
Ali, Liu, Shah, Tariq, Ali Chandio, & Ali. (2019). Analysis of the Nexus of CO2 Emissions, Economic Growth, Land under Cereal Crops and Agriculture Value-Added in Pakistan Using an ARDL Approach. Energies, 12(23), 4590. https://doi.org/10.3390/en12234590
Bashir, A., Thamrin, K. M., Farhan, M., Mukhlis, M., & Atiyatna, D. P. (2019). The Causality between Human Capital, Energy Consumption, CO2 Emissions, and Economic Growth: Empirical Evidence from Indonesia. International Journal of Energy Economics and Policy, 9(2), 98-104. https://doi.org/10.32479/ijeep.7377
Bashir, A., Susetyo, D., Suhel, S., & Azwardi, A. (2021). Relationships between urbanization, economic growth, energy consumption, and CO 2 emissions: empirical evidence from Indonesia. The Journal of Asian Finance, Economics and Business, 8(3), 79-90. https://doi.org/10.13106/jafeb.2021.vol8.no3.0079
Begum, R. A., Sohag, K., Abdullah, S. M. S., & Jaafar, M. (2015). CO2 emissions, energy consumption, economic and population growth in Malaysia. Renewable and Sustainable Energy Reviews, 41, 594–601. https://doi.org/10.1016/j.rser.2014.07.205
Boutabba, M. A. (2014). The impact of financial development, income, energy and trade on carbon emissions: Evidence from the Indian economy. Economic Modelling, 40, 33–41. https://doi.org/10.1016/j.econmod.2014.03.005
Cetin, M., Ecevit, E., & Yucel, A. G. (2018). The impact of economic growth, energy consumption, trade openness, and financial development on carbon emissions: empirical evidence from Turkey. Environmental Science and Pollution Research, 25(36), 36589–36603. https://doi.org/10.1007/s11356-018-3526-5
Dogan, E., & Turkekul, B. (2016). CO2 emissions, real output, energy consumption, trade, urbanization and financial development: testing the EKC hypothesis for the USA. Environmental Science and Pollution Research, 23(2), 1203–1213. https://doi.org/10.1007/s11356-015-5323-8
Dong, K., Dong, X., & Dong, C. (2019). Determinants of the global and regional CO 2 emissions: What causes what and where? Applied Economics, 51(46), 5031–5044. https://doi.org/10.1080/00036846.2019.1606410
Dou, Y., Zhao, J., Malik, M. N., & Dong, K. (2021). Assessing the impact of trade openness on CO2 emissions: Evidence from China-Japan-ROK FTA countries. Journal of Environmental Management, 296, 113241. https://doi.org/10.1016/j.jenvman.2021.113241
Fang, J., Gozgor, G., Lu, Z., & Wu, W. (2019). Effects of the export product quality on carbon dioxide emissions: evidence from developing economies. Environmental Science and Pollution Research, 26(12), 12181–12193. https://doi.org/10.1007/s11356-019-04513-7
Gozgor, G. (2017). Does trade matter for carbon emissions in OECD countries? Evidence from a new trade openness measure. Environmental Science and Pollution Research, 24(36), 27813–27821. https://doi.org/10.1007/s11356-017-0361-z
Islam, F., Shahbaz, M., Ahmed, A. U., & Alam, Md. M. (2013). Financial development and energy consumption nexus in Malaysia: A multivariate time series analysis. Economic Modelling, 30, 435–441. https://doi.org/10.1016/j.econmod.2012.09.033
Katircioğlu, S. T., & Taşpinar, N. (2017). Testing the moderating role of financial development in an environmental Kuznets curve: Empirical evidence from Turkey. Renewable and Sustainable Energy Reviews, 68, 572–586. https://doi.org/10.1016/j.rser.2016.09.127
Lestari, I. D., Effendi, N., & Priyono, A. F. (2020). Financial Development, Economic Growth, and Environmental Degradation Nexus in ASIAN Emerging Markets. Jurnal Ekonomi Pembangunan, 18(2), 177–189. https://doi.org/10.29259/jep.v18i2.12565
Mahmood, H., Maalel, N., & Zarrad, O. (2019). Trade Openness and CO2 Emissions: Evidence from Tunisia. Sustainability, 11(12), 3295. https://doi.org/10.3390/su11123295
Muhammad, B. (2019). Energy consumption, CO2 emissions and economic growth in developed, emerging and Middle East and North Africa countries. Energy, 179, 232–245. https://doi.org/10.1016/j.energy.2019.03.126
Narayan, P. K. (2005). The saving and investment nexus for China: evidence from cointegration tests. Applied Economics, 37(17), 1979–1990. https://doi.org/10.1080/00036840500278103
Narayan, P. K., & Smyth, R. (2005). Electricity consumption, employment and real income in Australia evidence from multivariate Granger causality tests. Energy Policy, 33(9), 1109–1116. https://doi.org/10.1016/j.enpol.2003.11.010
Nasreen, S., & Anwar, S. (2015). The impact of economic and financial development on environmental degradation. Studies in Economics and Finance, 32(4), 485–502. https://doi.org/10.1108/SEF-07-2013-0105
Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
Salahuddin, M., Alam, K., Ozturk, I., & Sohag, K. (2018). The effects of electricity consumption, economic growth, financial development and foreign direct investment on CO2 emissions in Kuwait. Renewable and Sustainable Energy Reviews, 81, 2002–2010. https://doi.org/10.1016/j.rser.2017.06.009
Shahbaz, M., Arouri, M., & Teulon, F. (2014). Short- and long-run relationships between natural gas consumption and economic growth: Evidence from Pakistan. Economic Modelling, 41, 219–226. https://doi.org/10.1016/j.econmod.2014.05.019
Shahbaz, M., Hye, Q. M. A., Tiwari, A. K., & Leitão, N. C. (2013). Economic growth, energy consumption, financial development, international trade and CO2 emissions in Indonesia. Renewable and Sustainable Energy Reviews, 25, 109–121. https://doi.org/10.1016/j.rser.2013.04.009
Shahbaz, M., Khraief, N., Uddin, G. S., & Ozturk, I. (2014). Environmental Kuznets curve in an open economy: A bounds testing and causality analysis for Tunisia. Renewable and Sustainable Energy Reviews, 34, 325–336. https://doi.org/10.1016/j.rser.2014.03.022
Shahbaz, M., Kumar Tiwari, A., & Nasir, M. (2013). The effects of financial development, economic growth, coal consumption and trade openness on CO2 emissions in South Africa. Energy Policy, 61, 1452–1459. https://doi.org/10.1016/j.enpol.2013.07.006
Shahbaz, M., Nasir, M. A., & Roubaud, D. (2018). Environmental degradation in France: The effects of FDI, financial development, and energy innovations. Energy Economics, 74, 843–857. https://doi.org/10.1016/j.eneco.2018.07.020
Shahbaz, M., Shafiullah, M., Papavassiliou, V. G., & Hammoudeh, S. (2017). The CO 2 –growth nexus revisited: A nonparametric analysis for the G7 economies over nearly two centuries. Energy Economics, 65, 183–193. https://doi.org/10.1016/j.eneco.2017.05.007
Wang, S., Li, G., & Fang, C. (2018). Urbanization, economic growth, energy consumption, and CO2 emissions: Empirical evidence from countries with different income levels. Renewable and Sustainable Energy Reviews, 81, 2144–2159. https://doi.org/10.1016/j.rser.2017.06.025
Zaidi, S. A. H., Zafar, M. W., Shahbaz, M., & Hou, F. (2019). Dynamic linkages between globalization, financial development and carbon emissions: Evidence from Asia Pacific Economic Cooperation countries. Journal of Cleaner Production, 228, 533–543. https://doi.org/10.1016/j.jclepro.2019.04.210
Zhong, X., Jiang, H., Zhang, C., & Shi, R. (2019). Electricity consumption and economic growth nexus in China: an autoregressive distributed lag approach. Environmental Science and Pollution Research, 26(14), 14627–14637. https://doi.org/10.1007/s11356-019-04699-w