Manufacturing sectors and environmental sustainability: The impact and policy mitigation in Sumatra

Abstract

Industrialization is a locomotive for absorbing labor and improving living standards for the people. In Sumatra, eight of the ten provinces show that manufacturing is the top three sector with the largest share of the economy. Apart from its important role, its existence cannot be separated from its adverse effects on the environment. Therefore, this empirical research will provide insight into how to find appropriate policies to maintain economic and environmental sustainability. Using panel regression, our results revealed that the number of industries and the increase in capital will influence environmental degradation. In addition, energy and fuel consumption have a negative impact on the environment, although with low statistical significance. Government spending for ecological purposes is required to reduce the adverse effects of industrialization. However, its effectiveness in the model is statistically insignificant because of the low fiscal budget allocation. As a recommendation, some policies can be implemented, including monitoring and evaluating program budgets, strengthening and coherency regulations, and synergy-commitment between the government and industry toward zero emissions.