Yes, it is possible, but you need to use your build argument as flag. You can use parameter expansion feature of shell to check condition. Here is a proof-of-concept Docker file:
FROM debian:stable
ARG BUILD_DEVELOPMENT
# if --build-arg BUILD_DEVELOPMENT=1, set NODE_ENV to 'development' or set to null otherwise.
ENV NODE_ENV=${BUILD_DEVELOPMENT:+development}
# if NODE_ENV is null, set it to 'production' (or leave as is otherwise).
ENV NODE_ENV=${NODE_ENV:-production}
Testing build:
docker build --rm -t env_prod ./
...
docker run -it env_prod bash
root@2a2c93f80ad3:/# echo $NODE_ENV
production
root@2a2c93f80ad3:/# exit
docker build --rm -t env_dev --build-arg BUILD_DEVELOPMENT=1 ./
...
docker run -it env_dev bash
root@2db6d7931f34:/# echo $NODE_ENV
development