The Impact of Economic Activity on Deforestation in Indonesia
DOI:
https://doi.org/10.59890/ijist.v4i9.60Keywords:
Influence, Economic Activity, Deforestation, IndonesiaAbstract
This study empirically analyses the impact of regional economic activity on deforestation across 16 major provinces in the Sumatra, Kalimantan, and Papua regions during the 2023–2025 period. It employed a short-panel data econometric approach (N = 16, T = 3, Total N*T = 48 observations) and evaluated spatial and temporal dynamics through Pooled OLS, Fixed Effects (FE), and Random Effects (RE) estimations. Formal specification tests specifically the Chow Test (F = 18.7819, p < 0.0001) and the Hausman Test (Chi-Sq = 135.5477, p < 0.0001) confirmed that the Fixed Effects model was the most consistent and valid estimator, as it accounted for unobserved regional heterogeneity. Pooled OLS estimation results revealed a positive and significant elasticity of Gross Regional Domestic Product (GRDP) with respect to deforestation (beta = 1.1790, p = 0.0408), demonstrating that a 1% increase in regional economic activity drove a 1.18% rise in the rate of forest cover loss. In the Fixed Effects model, internal variance was absorbed by spatial fixed effects due to the low variation in short-term temporal data relative to inter-regional disparities. These empirical findings confirmed the initial phase of the Environmental Kuznets Curve (EKC), demonstrating that economic growth in natural resource-rich regions remained extractive in nature. Policy recommendations emphasised strengthening the enforcement of Regional Spatial Plans (RTRW), rigorously evaluating National Strategic Projects (PSN), and accelerating the clean energy transition at the regional level.
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