Testing the EKC Hypothesis in Indonesia: Empirical Evidence from the ARDL-Based Bounds and Wavelet Coherence Approaches
This study aims to explore the long-run and causal effects of energy consumption, trade openness and economic growth on CO2 emissions in Indonesia. It employs newly developed econometric techniques using yearly data between 1980 and 2016. To capture long-run effects, the study uses the ARDL estimator, while the wavelet coherence technique is employed to investigate correlations and causal effects among the variables. The main novelty of the wavelet coherence technique is that it can obtain information on dynamic correlation and/or causality between economic variables at different frequencies and in different time periods. The findings from the ARDL long-run and short-run estimates reveal the validity of the environmental Kuznets curve (EKC) hypothesis in Indonesia. Furthermore, both economic growth and energy usage positively trigger CO2 emissions, while trade openness enhances the environmental quality. The wavelet coherence approach also provides supportive evidence for the ARDL long-run estimate.
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