Two-Way Causality Between Economic Growth and Environmental Quality: Scale in the New Capital of Indonesia

Abstract

The world is still facing an old challenge, e.g., environmental change. In many nations, including developing countries such as Indonesia, spurring economic growth is considered the best way to overcome many things. Indonesia is moving the center of the Indonesian Capital City (IKN). By opening up new space through the consideration of equitable economic development toward a green environment, this study is designed to investigate the impact of economic growth on environmental quality and vice versa. The object of analysis is directed at Penajam Paser Utara (PPU) as the new IKN center and four other IKN buffer areas in East Kalimantan, including (1) Paser, (2) Balikpapan, (3) Samarinda, and (4) Kutai Kartanegara. This study uses panel data regression and linear trends. The data elaborated is economic growth based on Regional Domestic Product (GRDP), which is proxied, and environmental quality, as reflected by the Environmental Quality Index (IKLH), during the 2017–2023 period. Referring to the method implemented, there is significant positive causality between the two in the selected IKN areas. Through the linear trend model, it is found that there is a tendency for changes in the data analyzed based on constant time. This study can be an instrument for practical policy making and a breakthrough in the development of a scientific discipline that studies the relationship between economic growth and environmental quality in two directions.