Spatial Panel Data Approach on Environmental Quality in Indonesia

Abstract

Indonesia adopted a strategic long-term development plan (2005-2025) targeting to achieve a green and everlasting Indonesia through implementing various environmental policies. One of the mandatory matters for governments is to continue environmental control by constructing Environmental Quality Indexes (EQI). This study focuses on the relationship between regional output or real Regional GDP, level of population density, and the government expenditure on environment quality on EQI in 34 provinces in Indonesia by the time period 2015 to 2019 using a spatial panel data approach. Within the context of spatial modeling, the interaction between provinces depends on their geographical location and condition. Using the geographic information system (GIS) and stata attributes, the coordinates and distances can be mapped and then defined for observation units in space via the spatial weight matrix used. From the perspective of spatial geography, this paper verifies the spatial dependence of Indonesia’s Environmental Quality Index (EQI). Pesaran's CD test indicates the spatial effect on the model and SAR with random effect can be considered a better-fitting spatial panel regression model. The results of the econometric spatial panel using SAR panel with random effect analysis show that Indonesia’s EQI in the provinces was dependent on the spatial. It was also found that regional GDP has a significant and negative effect on EQI and population density has a negative and significant effect on EQI. While fiscal policy on the environmental area on improving environmental quality did not pass a significance test. Thus, it is recommended to look for ways to promote green growth in the country.