Analysing the relationship between CO2 emissions and poverty in Indonesia: A Granger causality test

Abstract

Background of the study: Global warming is a significant problem that many experts have discussed because it relates to the world's future. A few countries are experiencing the impacts of global warming, which can affect large populations. Indonesia is also one of the countries at high risk. One of the factors that can cause global warming is CO2 emissions. Low income or poverty is another problem that arises in Indonesia. The Indonesian population currently living below the poverty line is 9.76%. According to the World Bank, 1 in 10 people lives below the poverty line. Increasing CO2 emissions related to anthropogenic activities can also increase the poverty rate. This study investigates whether there is a long-term relationship between CO2 emissions and poverty in Indonesia from 2000 to 2022. This study will examine the direction of influence between the two variables, and the results indicate that CO2 emissions have a one-way relationship with the poverty rate in Indonesia. The data collection process was conducted without significant constraints, and the pooled time-series data derived from the long-run Granger causality test are appropriate for analysis. The selection of an annual data series is justified because the quarterly data series was not available. The choice to utilise an annual data series is justified, as the quarterly data series was not accessible. The Granger representation theorem establishes unidirectional causality, elucidating the impact of poverty on CO2 emissions. It is reasonable to hypothesise that contemporaneous correlation or feedback presence reinforces the implications of model one (unidirectional Granger causality), which reveals the relationship between Y1t and Y2t, provided that the correlation is not excessively strong (two-way causality cannot occur). This research found that CO2 emissions exhibit a unidirectional association with Indonesia's poverty level. CO2 emissions impact poverty in Indonesia. Indonesia's economy is expanding, as demonstrated by the persistent upward trajectory in economic activities. The consistent expansion of economic activity has led to increased CO2 emissions. This study will contribute to the growing body of evidence on the relationship between low income and CO2 emissions. The technology used determines the level of CO2 emissions. The new insights pertain to environmental and development economics, as well as social policies. Providing alternative energy is a means to control CO2 emissions. In addition, welfare policies can be implemented to anticipate and minimise the impact of increased CO2 emissions. The choice of technologies and relevant factors may shape CO2 emissions. The level of CO2 emissions in this study is determined by examining Indonesia.