Balancing Growth and Green: The Role of Forests, Fiscal Transfers, and Sectoral Growth in Indonesia’s Environmental Quality

Authors

  • Rah Adi Fahmi Ginanjar Universitas Sultan Ageng Tirtayasa
  • Hady Sutjipto Universitas Sultan Ageng Tirtayasa
  • Umayatu Suiroh Suharto Universitas Sultan Ageng Tirtayasa
  • Suska Suska Kementerian Keuangan Republik Indonesia
  • Mohammad Zaki Kementerian Keuangan Republik Indonesia
  • Agi Sardjasasmita Kementerian Keuangan Republik Indonesia

DOI:

https://doi.org/10.23969/jrie.v5i1.176

Keywords:

Ecological Economics, Environmental Economics, Fiscal Decentralisation, Green Budgeting, Sustainable Development

Abstract

This study examines how forest area, fiscal decentralisation, and sectoral economic growth affect environmental quality across Indonesian provinces. Forests are categorised into conservation, protected, and production areas. Fiscal decentralisation is analysed through natural resource revenue-sharing and local government environmental expenditures, while economic activity is segmented into the primary, secondary, and tertiary sectors. The analysis uses a dynamic panel dataset of 33 provinces from 2017 to 2022. To address potential endogeneity, the study employs a multi-stage estimation strategy, starting with Pooled OLS and Fixed Effects models, followed by the Durbin-Wu Hausman test to justify the use of a dynamic Generalised Method of Moments (GMM) framework, with System-GMM selected as the final estimator. The results indicate that natural resource revenue-sharing has a positive effect on environmental quality. However, economic growth across all sectors negatively impacts environmental outcomes, while environmental protection expenditure shows no significant effect. These findings emphasize the need to adjust decentralised fiscal policies to focus more on ecological outcomes and steer more sustainable regional development.

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Published

2025-04-30

How to Cite

Ginanjar, R. A. F., Sutjipto, H., Suharto, U. S., Suska, S., Zaki, M., & Sardjasasmita, A. (2025). Balancing Growth and Green: The Role of Forests, Fiscal Transfers, and Sectoral Growth in Indonesia’s Environmental Quality. Jurnal Riset Ilmu Ekonomi, 5(1), 1–19. https://doi.org/10.23969/jrie.v5i1.176

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Vol. 5 No. 1 (2025): Jurnal Riset Ilmu Ekonomi (JRIE) Edisi April 2025

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