How Geopolitical Risk affect to Environmental Sustainability in Indonesia

Abstract

This study analyzes the influence of geopolitical risk (GPR), non-renewable energy consumption (NRE), trade liberalization (TR), and industrialization (IDS) on environmental sustainability (SDI) in Indonesia for the period 1980–2023 using the VECM model. The results show that NRE and IDS have a long-term negative effect on SDI, TR has a positive effect, while GPR is insignificant. Granger causality tests indicate a bidirectional relationship between NRE and SDI, while variance decomposition results show that SDI is most influenced by itself and NRE (20%). The IRF analysis reveals that shocks to the main variables can be stabilized around the 30th period, indicating the structural adaptability of the economy and the environment. This finding confirms the existence of a feedback effect between energy and the environment, where dependence on fossil fuels worsens environmental quality. This study recommends a transition to clean energy and strengthening green industrial policies to maintain environmental sustainability.