The Dynamic Nonlinear Effect of Urban Intensity on Natural Resources in Indonesia: Evidence from Asymmetric ARDL and Causality Approaches

The aim of this study is to explore the role of urbanization and economic growth in natural resources using a time series data from 1971 to 2018. The current study applied a novel methodology of nonlinear ARDL proposed by Shin et al. (2014). This methodology is ideal to answer the asymmetric effect on the independent variable on the dependent variable. Furthermore, we also applied asymmetric Granger causality introduced by Hatemi-J (2012) to confirm the causal relationship between the variables. The results of NARDL affirmed that all the variables have a significant impact on natural resources rent. The findings confirm that negative shocks of urban intensity decrease the natural resources rents; however, the positive shocks increase the rents of natural resources. On the one hand, the positive and negative shocks of GDP increase the natural resources though, the magnitude of positive shocks are significantly different from the negative shocks. On the other hand, the results of asymmetric Granger causality confirm that positive and negative shock of urban intensity does granger cause positive shocks of natural resources. Whereas, positive shocks of natural resources (economic growth) have a causal connection with positive and negative shocks of economic growth (natural resources) in Indonesia.