Trade and Environment in Indonesia: An Input-output Approach

Abstract

This study explores the trade and environment in Indonesia. This article aims to examine whether Indonesia is a pollution haven for its trade partners using an input-output framework from 2010 to 2014. The pollution haven can be examined by calculating how much carbon emissions will increase if exports increase by 1 million dollars and how much pollution would decline because of importing products that are not produced in Indonesia. The findings reveal mixed evidence during the period of the study. The evidence from 2012 to 2014 display that Indonesia was not a pollution haven, whereas the findings from 2010 and 2011 show that the pollution haven hypothesis was most likely to hold in Indonesia. Environmental regulations should emphasize the direct and indirect emissions which are generated during the production process of traded goods.