Balancing Growth and Ecology: Evidence from Indonesia’s Economic Development and Environmental Impact

This research investigates the correlation between economic growth (GDP), foreign direct investment (FDI), and urban population in relation to the ecological footprint (EF) while testing the Environmental Kuznets Curve (EKC) hypothesis within the Indonesian context. Employing a robust time series analysis, the study utilizes an Error Correction Model (ECM) to analyze annual data spanning from 1971 to 2021. The novelty of this research lies in its approach of using the ecological footprint as an environmental indicator, moving beyond traditional metrics such as CO2 emissions. Furthermore, the study leverages a more extensive time series dataset than previous research, providing a comprehensive understanding of the dynamics between economic growth and environmental impact in Indonesia. The research findings support the Environmental Kuznets Curve (EKC) hypothesis, showing that while economic growth initially increases the ecological footprint, it eventually leads to a decrease as income levels rise, indicating a shift towards environmental sustainability. Additionally, both foreign direct investment (FDI) and urban population have a significant negative impact on the ecological footprint in both the short and long term. This suggests that increased FDI and urbanization enhance environmental efficiency, likely through cleaner technologies and improved infrastructure. These results emphasize the need for sustainable economic practices and the importance of integrating environmental considerations into policymaking as economies continue to develop.