Environmental Quality Index in Indonesia: Economic Activities, Investment, Forest and Land Fire

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Abstract Rapid economic growth requires more activities that affect the environment negatively. The production process from economic activities yields goods and services and wastes. The waste can be contained by hazardous elements that can cause health problems and endanger the quality of the environment. Thus, the environmental quality should be maintained to create ideal conditions and minimize negative externalities. The issue regarding environmental quality induces some studies to develop policies on maintaining the environment’s quality. Studies on environmental quality are investigated not only by using a natural science perspective but also from social science, such as economics. Many studies have discussed environmental quality using different approaches from a social science perspective. However, only a few studies have covered Indonesia by province in the past five years. This study aims to estimate the determinants of the Environmental Quality Index in 34 provinces in Indonesia. The current research treats forest, land fire, and economic variables as independent variables, including Gross Domestic Regional Product (GDRP), provincial environmental budget, and investment. The secondary data are generated from Statistics Indonesia from 2016-2022. This study employs static panel regression with a Fixed-Effect model to estimate the data. The results revealed that forest and land fires and the provincial budget for the environment significantly affect the environmental quality index in Indonesia. This implies that budget allocation for environmental spending is one of Indonesia’s policies that control environmental quality.