The Relationship between Green Growth and Trade Openness: Empirical Evidence from Indonesia
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Abstract
This study explores the relationship between green economic growth, regional trade openness, renewable energy consumption, and CO2 emissions in the agglomeration area of Sumatra Island, Indonesia. Using panel data from 2010 to 2023, this research examines the region’s efforts to reduce the environmental impact of fossil-based energy consumption by transitioning to renewable energy, supporting ecological resilience. This transition, however, requires significant time and financial investments. The Sumatra Island agglomeration, with its shared environmental characteristics, plays a crucial role in trade openness and presents opportunities for alternative financing mechanisms to ensure economic sustainability. Employing ARDL and VEC model analysis, this study highlights both short- and long-term relationships between regional trade openness and green economic growth, providing insights into the future economic prospects of the Sumatra Island agglomeration. The findings indicate that regional trade openness significantly influences green economic growth in a positive direction in both the short and long terms. The study recommends fiscal policies, including tax incentives for trade that supports the green economy and the implementation of carbon taxes to regulate CO2 emissions, to promote sustainable development in the region.
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