MACROECONOMIC DETERMINANTS OF CIRCULAR ECONOMY INNOVATION ACTIVATION IN CENTRAL JAVA

Abstract

Climate change is a threat to future economic growth due to environmental damage caused by unmanaged waste generation. The circular economy plays an important role because it can be a solution to increase economic growth by managing waste as a production material. However, in Indonesia, the circular economy has not been running optimally, so encouragement is needed to innovate and implement the circular economy from a macroeconomic point of view. This study examines the impact of macroeconomic factors on the adoption of the circular economy, which aims to increase local revenue and reduce environmental damage in Central Java Province. This study uses per capita income, Human Development Index (HDI), Domestic Direct Investment (DDI), and Government Expenditure as proxies for macroeconomic variables, while using Environmental Quality Index (EQI) as a proxy for circular economy. This study utilizes the quantitative methodology of panel data regression analysis. The research findings show that the HDI variable provides a significant positive influence. In contrast, government expenditure has a negative influence on EQI, although income per capita and DDI do not have a significant influence on EQI. The implications of this study are expected to provide information to relevant stakeholders in developing appropriate policies to encourage innovation in the implementation of the circular economy in Central Java Province. The government is expected to assist stakeholders in developing policies to improve the implementation of the circular economy, especially by focusing on areas with low DDI but high per capita income and DDI and accompanied by increasing public knowledge about waste management.