The Impact of Regional Policy and Population Growth on Environmental Kuznets Curve for Agricultural Sector in Indonesia: A Provincial Dynamic Panel Data Analysis.
DOI:http://dx.doi.org/10.12944/CWE.15.2.14
This paper aims to determine the impact of regional policy (RAD GRK) and population on GHG emission reductions in the Environmental Kuznets Curve (EKC) hypothesis of land-based agriculture (food crops, horticulture , and plantations) in Indonesia. This study uses provincial-level panel data and is processed using the GMM system method. The conclusion of this study proved the occurrence of the EKC hypothesis of the land-based agriculture sector in Indonesia with turning points of Rp. 44,201,600 /capita and Rp. 43,888,800/capita. The results of the study show that regional government policies and population growth in Indonesia has reduced the level of GHG emissions in the land-based agriculture sector.
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Prastiyo S. E, Irham, Hardyastuti S, Jamhari. The Impact of Regional Policy and Population Growth on Environmental Kuznets Curve for Agricultural Sector in Indonesia: A Provincial Dynamic Panel Data Analysis. Curr World Environ 2020; 15(2). DOI:http://dx.doi.org/10.12944/CWE.15.2.14
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Prastiyo S. E, Irham, Hardyastuti S, Jamhari. The Impact of Regional Policy and Population Growth on Environmental Kuznets Curve for Agricultural Sector in Indonesia: A Provincial Dynamic Panel Data Analysis. Curr World Environ 2020; 15(2). Available from:https://bit.ly/3agDSLH
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Article Publishing History
Received: | 21-02-2020 |
---|---|
Accepted: | 15-07-2020 |
Reviewed by: | Darwin Pangaribuan |
Second Review by: | Evans Asenso |
Final Approval by: | Umesh Kulshreshtra博士 |
Introduction
The challenges of agricultural development today are not only to meet food needs, but also must be more environmentally friendly. Food demand is expected to continue to increase with an increasing population.1,2The increasing need for food both from food crops, horticulture, plantations, andanimal husbandry spurs productivity in the agricultural sector which triggers an increase in greenhouse gas (GHG) emissions in the agricultural sector.3–5In Indonesia, the agricultural sector's GHG emissions are dominated by the land-based agriculture subsector (food crops, horticulture, and plantations) compared to the livestock subsector. Data from Kementerian Lingkungan Hidup dan Kehutanan (The Ministry of Environment and Forestry)6in 2017 emissions from the land-based agriculture sector reached 98,956.86 GgCO2eq, while emissions from the livestock sector only amounted to 21,070.52 GgCO2eq.
To reduce the rate of GHG emissions in 2009 the Indonesian government issued a policy called Rencana Aksi Pengurangan Emisi Gas Rumah Kaca (RAN–GRK) (Decree for GHG Emission Reduction) where Indonesia is committed to reducing GHG emissions by 26% with domestic effort and by 41% using international assistancebased on estimates from BAU (Business as Usual).7,8Agricultural sector emissions are targeted to decrease by 21 MtCO2eq/year until 2030.9,10At the regional (provincial) level, each Provincial Government is required to issued Rencana Aksi Daerah Penurunan Emisi Gas Rumah Kaca (RAD-GRK) (Regional Action Plans for Emissions Reduction) which allows regional governments to participate in national action plans for reducing GHG emissions.11Participation at the provincial-level is by calculating mitigation potential, developing emission reduction strategies, selecting local level mitigation actions, and identifying key stakeholders/institutions and financial resources12。The agricultural GHG emission reduction policy in Indonesia is consistentwith the global GHG emission reduction scenario policy,13stated that although after the Paris Agreement in 2015 which globally had a target of reducing emissions by 1 GtCO2eq/year in 2030, the target must still ensure global food security. RAD-GRK policies at the regional level and RAN-GRK at the national level are part of Nationally Appropriate Mitigation Actions (NAMAs) that are continuously reported to the UNFCC.8,14,15
With the population reached 267.3 millions in 2018 and its growth about 1.2%/year in the past 5 year,Indonesia is one of the countries with the largest population in the world. The increased human activity due to population growth is one of the causes of greenhouse gas (GHG) emissions.16In the agricultural sector, GHG emissions will increase along with economic growth, an increase in agricultural production and increase in population.17The agricultural sector which is conducted in densely populated areas will produce agricultural cultivation that is not environmentally friendly. This is due to the use of chemical fertilizers which are increasingly inefficient so that they produce more GHG emissions.18–20In fact, the combination of income growth and population pressure on agricultural land is the main driver for the use of chemical fertilizers.21In Indonesia, the development of an environmentally friendly agricultural sector, especially food crops, is constrained by the inefficiently of chemical fertilizers, especially in rice cultivation which has traditionally been the main emitter.12
Some scientists22,23explicitly refer to GHG emissions as an externality resulting from economic activities. One hypothesis about the relationship between environmental damage and economic growth is the Environmental Kuznets Curve (EKC). The basis of the EKC hypothesis is that economic growth or per capita income will increase environmental damage and then decrease in an inverted U curve pattern24。In the early stages of economic growth, pollution abatement was almost non-existent because people did not yet have a preference for environmental quality25。The relationship between economic growth in the agricultural sector and GHG emissions is varied. The study from26shows that Agriculture Value Added has a positive relationship with emissions in high- and upper-middle-income countries, but in low-middle-income countries an increase in Agriculture Value Added will reduce CO2 emissions. While the studyby Balsalobre-lorente et al27shows that the GDP of the agricultural sector is influential in increasing emissions in BRICS countries.
EKC theory is an adaptation of the research conducted by33initially to find out the relationship between economic growth and income inequality. Kuznets curve research has continued to develop since the 90s through various studies by34–36to seek the relationship between environmental damage and economic growth. The various studies have become the initial milestone in the development of the EKC hypothesis.
With the increasing anxiety about climate change, environmental degradation variables are then measured using GHG emission variables. Initial EKC research using GHG emissions as a variable for environmental damage was carried out, among others by36–38by using panel data. EKC research using panel data is growing, recent studies using panel data include;39,40confirmed EKC hypothesis in the countries of Europe;41confirmed the EKC hypothesis in 14 African countries42;searched in MIKTA countries (Mexico, Indonesia, South Korea, Turkey, and Australia) the results where the EKC hypothesis was rejected in this study;43,44;conducted an EKC hypothesis study in ASEAN countries, the results of in the research from43EKC hypothesis was accepted and research from44the EKC hypothesis was rejected. For EKC research with panel data in one country, among others, conducted by45;examined the EKC hypothesis in China wherethe EKC was confirmed in the eastern region and the central region and rejected in the western region46,47;confirm the occurrence of EKC in China in all regions; while48confirm the EKC hypothesis in theUnited States.
Increasing global awareness on the issue of climate change and global warming has led many countries to tighten environmental regulations. The study of policies or regulations in relation to the EKC hypothesis is conducted among others49; in European countries shows that with strict legal rules the number of turning points obtained will be lower so that the goal of environmental preservation will be more easily achieved;study from50concluded that energy regulation policies can reduce GHG emissions51;in hisstudies in the European Union, Middle East, and Africa countries, concluded that the more stable political conditions, the quality of regulations and the more effective governance will be able to reduce GHG emissions52; testing the policy in Taipei in the form of regulations fee for disposal of plastic waste has proven to be able to preserve the environment; while studies from47,53in China shows that strict environmental regulations can reduce GHG emissions. A study from54in 8 OPEC member countries concluded that good governance policies would reduce GHG emissions. Conversely, bad governance due to a high corruption index, it will affect horribly the quality of the environment.55–57
Generally, countries with high populations will produce large emissions. Population growth increases the number of consumers and the level of consumption thereby driving growth in GHG emissions.58In the EKC hypothesis population variables are used in various forms including; the population density variable used by59,60who concluded that the population density variable increases GHG emissions; urbanization variable used by61–64whoconcluded that urbanization increases emissions except in research by64who concluded that urbanization will actually reduce emissions; the total population variable is used by65where this variable increases emissions in the long run, but has no effect in the short run; population growth variable used by31,66whoconcluded that the variable population growth increases CO2 emissions.
本研究旨在确定开放的影响l and population policies in reducing GHG emissions in the EKC hypothesis of the land-based agriculture sector (food crops, horticulture , and plantations) in Indonesia. The EKC hypothesis research in the land-based agriculture sector in Indonesia also uses regional economic growth variables as endogenous variables. This research provides a novelty in the form of a special EKC hypothesis in the land-based agriculture sector (food crops, horticulture , and plantations). The use of population growth variables, comparison of emissions for the island of Java as the main producer of rice in Indonesia, to regional policies on reducing GHG emissions in the agricultural sector are a novelty addition in this study. Various studies on GHG emissions using the EKC hypothesis in Indonesia have been conducted before,28used coal consumption as the dependent variable while the urbanization and trade openness variableswere used as exogenous variables29;searched the effect of renewable energy on EKC;30examined the effects of energy consumption, financial development and international trade on EKC,31examined the EKC hypothesis with energy consumption and population growth regressor variables. Various results of these studies concluded thatthe EKC hypothesis occurred in Indonesia. While research from32concluded that there is no evidence ofthe EKC hypothesis in Indonesia.
Data and Methodology
Data
Data obtained by various sources, data on CO2 emissions from the land-based agriculture sector were obtained from the Ministry of Environment and Forestry,6labor data were obtained from the Ministry of Agriculture,67data on economic growth in the agricultural sector using the value of Gross Regional Domestic Products(GRDP)and population growth data obtained from the Central Statistics Agency ( BPS)68。Provincial government policy data on reducing greenhouse gas emissions were obtained from the Badan Perencanaan Pembangunan Nasional (National Development Planning Agency) (Bappenas).69Following the availability and reliability of the data, only 31 Provinces of 34 Provinces in Indonesia were used from 2009 - 2017.
Methodology
The econometrics model in this study uses the approach taken by Dinda.70The focus of this research is to get the effect of population growth and provincial-level GHG emission reduction policies based on the EKC hypothesis. The equation used in this study is:
Model 1:
To find out the effect of GHG emission reduction policies, equation (2) is made, which is :
Model 2 :
Equations (1) and (2) are converted into equations (3) and (4) based on the Generalized Method of Moments (GMM) two-step system equation developed by71to check the EKC hypothesis as previously used by53,72:
Model 1 :
Model 2 :
where i is the province (i = 1,2, ........, 31) and t is the time period (t = 2009 - 2017),vis the effect of the panel level and É› is the term for random error. CO2 is the carbon emission of the land-based agriculture sector (food crops, horticulture, and plantations) of Indonesia per capita labor (kgCO2eq/capita), with explanatory variables consisting of;GRDP and GRDP2 is the value GRDP of the land-based agriculture/laborcapita(Rp/capita(base year 2010)). PG is Population Growth (%), this variable in previous studies affected on emissions31,66。DJawa is a dummy for the island of Java (1 for the province in Java Island and 0 for outside Java), Java was chosen because it has the largest number of agricultural land-basedworkers. DP is the Dummy Policy for the year in which the Regional Action Plan for Reducing Greenhouse Gas Emissions Reduction (RAD GRK) was established (0 before the regulation was passed and 1 after the regulation was passed). The statistical description of the variables used in this study can be seen in table 1.
Table 1. Descriptive statistic of variable
CO2 |
GRDP |
GRDP2 |
Population growth |
|
Mean |
2,555.342 |
23,101,591 |
7.08x1014 |
1.84170 |
Median |
2,624.137 |
21,009,033 |
4.41x1014 |
1.64787 |
Maximum |
7,761.663 |
84,642,640 |
7.16x1014 |
14.73295 |
Minimum |
18.19486 |
4,933,820 |
2.43x1014 |
-13.44776 |
Std. Dev. |
1,587.721 |
13,213,300 |
9.90x1014 |
2.066913 |
Observations |
279 |
279 |
279 |
279 |
In general, based on research by Dinda70the estimation model examinesthe significance of the βi coefficient. Possible hypotheses are :
- If β1= β2= 0 then there is no relationship between x and y
- If β1> 0 and β2= 0, a linear and increasing relationship exists between x and y
- If β1< 0 and β2= 0, a linear and descending relationship exists between x and y
- If β1> 0, β2< 0, there is an inverse U relationship between x and y, so EKC occurs
- If β1< 0, β2> 0, U-shaped curve occurs.
where the turning point of gross regional domestic product per capita is expected to be discovered through
The panel data used in this study has a large cross-section type, but with little time span. This causes stochastic disorders related to exogenous explanatory variables and endogenous explanatory variables73。So GMM is used to control the potential for the endogeneity of variables. To test the model according to criteria from74然后AR (1) AR(2)测试,检查hypothesis of no serial correlation, are also presented. Also, the Sargan test was also carried out to test the validity of the instrument.
Result and Discussion
Before conducting panel data regression using the system GMM estimator, a stationarity testmust be performed on each variables75–77use the unit root test both the common unit root test LLC (Levin, Lin, Chu) by78and individual IPS root unit tests by79。The stationary test is carried out on all variables except the dummy variable, the results of the stationarity test in table 2 show that all variables have been stationary at the level or at the first difference.
Table 2:Test the root unit for stationarity
Unit Root Test |
LLC Test |
IPS Test |
||
Level |
First Difference |
Level |
First Difference |
|
CO2 |
- 6.18599*** |
- 12.1085*** |
- 1.26940 |
- 4.98097*** |
GRDP |
- 2.26481** |
- 11.0175*** |
1.89807 |
- 3.58988*** |
GRDP2 |
- 0.42284 |
- 8.21927*** |
2.69801 |
- 2.78396*** |
Population Growth |
- 31.3623*** |
- 10.5477*** |
- 10.6772*** |
- 7.02487 * * * |
Source: Authors compilation
***,**,* : significant at 1%, 5% and 10% respectively
After obtaining that the variable used passed the stationarity test then the equation 1 model and model 2 were then tested according to the GMM System method. GMM test results in table 2 show that model 1 and model 2 can be seen from the autocorrelation test (AR (1) and AR (2)) and the Sargan test. In the first difference residuals test where the value of AR (1) is significant so H0 is rejected and the value of AR (2) is not significant so that H0 is accepted so that model 1 and model 2 do not experience autocorrelation problems. To test the validity of the models, the Sargan test is used where H0 states that the variables used that have over-identifying restrictions are rejected so that the validity of model 1 and 2 are accepted.
Table3:Result of System GMM estimation
Regressor |
Coefficient |
t Statistic |
Probability |
Coefficient |
t Statistic |
Probability |
Model 1 |
Model 2 |
|||||
CO2t -1 |
0.5721905*** |
37.52 |
0.000 |
0.6047943*** |
16.37 |
0.000* |
GRDP |
0.0001052*** |
32.68 |
0.000 |
0.0001027*** |
26.08 |
0.000 |
GRDP2 |
-1.19E-12*** |
-25.48 |
0.000 |
-1.17E-12*** |
- 24.54 |
0.000 |
PG |
-13.86256*** |
-3.50 |
0.000 |
-17.77709*** |
- 3.49 |
0.000 |
DJawa |
1,597.22*** |
11.67 |
0.000 |
1,258.212*** |
5.24 |
0.000 |
Dpolicy |
-190.6635*** |
- 6.57 |
0.000 |
|||
C |
-618.4133*** |
-9.74 |
0.000 |
-457.0439*** |
- 2.87 |
0.004 |
AR (1) |
-2.9712 |
0.0030 |
-3.0279 |
0.0025 |
||
AR (2) |
-0.37937 |
0.7044 |
-0.33616 |
0.7367 |
||
Sargan test |
27.65361 |
1.0000 |
27.42195 |
1.0000 |
||
N |
248 |
248 |
||||
Turning Point |
Rp. 44,201,680,67 |
Rp. 43,888,888.88 |
Notes : *,**,***10, 5 and 1 percent level of significance
System GMM test results in both model 1 and model 2 show that the previous year's emissions also contributed to the current year's emissions. These results are consistent with similar studies using the GMM model in which the previous year's emissions had a positive and significant effect.53,80。In model 1, an increase of 1 kgCO2eq/capita in the previous period will increase current year emissions by 0.57 kgCO2eq/capita. Whereas in model 2 an increase of 1 kgCO2eq/capita in the previous period will increase current year emissions by 0.60 kgCO2eq/capita.
The GMM model also shows that economic growth represented by the GRDP/capita has a very significant effect on GHG emissions in the agricultural sector. Economic growth through GRDP of Rp. 1,000/capita will increase agricultural sector GHG emissions by 0.1052 kgCO2eq/capita in model 1 and 0.1027 kgCO2eq/capita in model 2. Although not in the agricultural sector, the effect of economic growth on GHG emissions in Indonesia is according to previous research.28–30,32,81As for research on the agricultural sector, economic growth also affects agricultural sector emissions in France, Spain, and Portugal,82Bulgaria and the Czech Republic,83Iran84and China.85The GRDP2 results are negative and significant at model 1 and model 2 according to research from70the EKC hypothesis was confirmed in the land-based agriculture sector in Indonesia. Confirmation of the EKC hypothesis of the agricultural sector in Indonesia is consistent with previous EKC hypothesis research in Indonesia, although it is not specific about the EKC hypothesis of the agricultural sector.28–30,86
dummy policy variable in model 2 shows that this variable has a negative and significant effect on GHG emissions in the agricultural sector, this conclusion is consistent with previous research namely.47,49–53This shows that the regulation on GHG emission reduction at the provincial-level (RAD GRK) can reduce GHG emissions in the agricultural sector. In the Decree for GHG Emission Reduction (RAN GRK) document, the Indonesian government is targeted to reduce GHG emissions in the agricultural sector by 21MtCO2eq/year by 2030.9Data on agricultural sector emissions (including livestock and forestry) from 2009-2016 show that Indonesia has succeeded in reducing GHG emissions by an average of 6.33 MtonCO2eq compared to Business as Usual projections.87
Population growth in Indonesia has a negative and significant coefficient. In model 1 each increase in population growth by 1 % will reduce agricultural sector GHG emissions by 13.86 kgCO2eq/capita, whereas in model 2 each increase in population growth of 1 % will reduce agricultural sector GHG emissions by 17.77 kgCO2eq/capita. This result is different from the research by Alam et al and Begu et al31,66for the general sector where increased population growth will increase GHG emissions. For the Agriculture sector17,88本研究也给了不同的结果。difference in the results of this study with previous research is possible because the focus of this study is only on the land-based agriculture sector. Besidethe land-based agriculture sector in Indonesia, the increase in population and economic growth in Indonesia triggers the flow of agricultural land conversion. Many agricultural lands have turned into residential areas, industrial areas, and others. From 2000 - 2015 from 9 provinces with the largest paddy fields in Indonesia, the average land conversion was 96,512 hectares annually.89–91The flow of land conversion caused by population growth has caused a decline in agricultural land in Indonesia.
dummy variable for Java in both model 1 and model 2 shows that this variable influences emissions. This shows that there are real differences between the agricultural sector's GHG emissions produced in Java and outside Java. According to data from Ministry of Environment and Forestry,6emissions from rice cultivation and land management dominate GHG emissions from the land-based agriculture sector in Indonesia. Java Island has the most extensive rice fields compared to other islands in Indonesia. The area of paddy fields on the island of Java reaches 3,223,812 ha, equivalent to almost 40 % of paddy fields in Indonesia.92This can be an explanation for the significance of the Java dummy variable.
One of the main issues of research on the EKC hypothesis is the turning point. Turning points in this study will occur when the GRDP/capita at Rp. 44,201,608.67/capita in model 1 and Rp. 43,888,888.88/capita in model 2. Lower turning points in model 2 indicate that government policy or regulation variables can bend the EKC curve so that turning points are faster to obtain. By calculating GRDP using the base year 2010, the turning point value in model 1 is equivalent to 4,916.21 USD/capita and 4,881.42 USD/capita in model 2. The RAD GRK policy is also able to accelerate the achievement of turning points so that environmental aspects of sustainability are more quickly obtained. The turning points generated in this study are consistent with various previous studies. Whereas turning points in the EKC study in the agricultural sector have not been done much, but the results of this study are not much different from the study84obtained by the agricultural sector's turning point at4,711 USD, 5,424 USD and 4,920 USD. In comparison, the turning point on the general sector EKC hypothesis in Indonesia is equal to 7,729 USD/capita29。In the ASEAN region a turning point is obtained at4,685 USD/capita43; Asian region obtained at 8,600 – 11,600 USD/capita93; as well as developing countries obtained between 928.88 USD/capita – 8,910 USD/capita.94–96The GRDP of the land-basedagricultural sector in 2017 in Indonesia averaged Rp. 28,782,788.73/capita or equivalent 3,201.28 USD/capita, so the turning point in Indonesia has not been reached. . The EKC hypothesis confirmed in this study shows that economic growth will increase agricultural sector GHG emissions in Indonesia. However, after turning points are exceeded, GHG emissions from the agricultural sector will decline.Therefore, the results of this study can provide an overview for policymakers to encourage economic growth in the agricultural sector in Indonesia. In addition to encouraging the welfare of farmer’s economic growth, also in the long run after achieving turning points emissions will decrease.
Conclusion and Policy Implication
The results of this study indicate that economic growth affects the increase in GHG emissions from the land-based agriculture sector. Whereas population growth causes reduced GHG emissions from the land-based agriculture sector due to this variable causing the conversion of agricultural land. The land-based agriculture sector in Java is proven to produce greater GHG emissions than islands outside Java.
政府政策变量在RAD的形式-GRK at the provincial-level in this study proved to be able to reduce GHG emissions in the agricultural sector. In implementing RAD-GRK policies, it is evident that the agricultural sector is sufficiently prepared to implement various mitigation policies97。A study from98shows that in 2030 Indonesia is estimated to be able to reduce emissions in the agricultural sector by 47 MtCO2eq/year far greater than the target of 21MtCO2eq/year. Further study of the influence of RAD-GRK policy factors in each province will greatly help to provide a better figure.
这项研究还确保了that GHG emissions from the land-based agriculture sector produced by farmers in Java were greater than farmers outside Java. The large size of paddy fields in Java is the cause of the greater GHG emissions compared to other islands in Indonesia. The EKC hypothesis confirmed in this study shows that in economic growth will increase agricultural sector GHG emissions in Indonesia. However, after turning points are exceeded, GHG emissions in the agricultural sector will decline. Based on the results of this study, the Indonesian government needs to implement an abatement policy, especially for agriculture in Java. The results of this study indicate that the agricultural sector in Java produces more per capita emissions compared to outside Java.
Acknowledgements
We would like to thank to the Department of Agricultural Socioeconomics, Faculty of Agriculture, and Universitas Gadjah Mada for their assistance in conducting this research. The authors also express sincere thanks and gratitude for the support for the research from Central Java Provincial Government and Research Directorate, Universitas Gadjah Mada especially for the publication of this article.
Funding Source
The author(s) received no financial support for the research, authorship, and/or publication of this article.
Conflict of Interest
The authors do not have any conflict of interest.
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