Economic Performance of Indonesia amidst CO2 Emissions and Agriculture: A Time Series analysis

Abstract

Abstract The research assesses the impact of CO2 emissions and energy use on economic performance and considers trade openness, urbanization, and agriculture in Indonesia utilizing data covering the period from 1965–2019. The current research employed the Dynamic Ordinary Least Square (DOLS), Autoregressive distributed lag (ARDL), and Fully Modified Ordinary Least Squares (FMOLS) methods. Furthermore, the Gradual shift and Wavelet coherence tests are utilized to capture the direction of causality. The ARDL bounds test discloses a long run interaction among the parameters of interest. The empirical evidence depicts that emissions, agriculture, energy use, and urbanization triggers economic growth. Besides, the growth-induced energy hypothesis is confirmed. This result is resonated by the causality analysis where GDP drives energy one-way in Indonesia. This proposes that Indonesia can embark on conservative energy policies, as such actions will not hurt its growth. Furthermore, there is one-way causality from agriculture to GDP. These outcomes have far-reaching significance for GDP growth and the selected variables in Indonesia.