The Environmental Impact of Palm Oil Industry Expansion in Indonesia: Evidence from Changes in Forest Resources

The study constructs a theoretical analysis framework linking palm oil industry expansion and forest resource change, and conducts an empirical study based on a simulated 2014-2023 province-level panel of 12 major palm oil-producing provinces in Sumatra and Kalimantan, Indonesia. The study adopts the entropy method, a two-way fixed-effects model, an instrumental-variable (2SLS) strategy and sub-sample heterogeneity tests to measure the development level of the palm oil industry expansion system and the forest resource system, estimate the effect of expansion on forest resources, and identify regional differences. The simulated results show that expansion is associated with a significant decline in the forest resource index (baseline coefficient -0.335), that the instrumental-variable estimate (-0.614) is larger in absolute terms, and that the effect is stronger in smallholder-dominated and peatland-rich provinces. This study provides an empirical framework and policy reference for promoting the sustainable development of Indonesia's palm oil sector, and can also offer reference for similar research on other tropical developing economies.