The effect of economic agglomeration on water quality index (WQI) in Indonesia

Economic agglomeration is the concentration of many firms and industries in close proximity that is considered effective in urging growth across developing countries. Despite the advantages, limited studies are examining negative externalities as a result of economic agglomeration towards the environment, including on water quality. Indonesia as an island country has experienced notable economic growth in the last 20 years, but at the same time currently contains some of the worst polluted rivers in the world. Using the linear regression method, this study measured the effect of economic agglomeration on water quality index (WQI) across 34 provinces in Indonesia between 2013-2018 using random effect on panel data sourced from The Ministry of Environment and Forestry and Statistics Indonesia. The results reveal that economic agglomeration had a significant and negative effect on water quality by 0.2% on the index. The relationship was consistent even when controlled for other variables like population, sanitation access, foreign direct investment (FDI), the proportion of secondary industries, and gross regional domestic product (GRDP). Furthermore, there was also a significant effect of FDI on WQI. These results call for a sound regulatory framework to protect the water quality from economic agglomeration in order to avoid environmental degradation.