Do Economic Policy Uncertainty and Geopolitical Risk Lead to Environmental Degradation? Evidence from Emerging Economies

Abstract

Since the turn of twenty first century, economic policy uncertainty (EPU) and geopolitical risk (GPR) have escalated across the globe. These two factors have both economic and environmental impacts. However, there exists dearth of literature that expounds the impact of EPU and GPR on environmental degradation. This study, therefore, probes the impact of EPU and GPR on ecological footprint (proxy for environmental degradation) in selected emerging economies. Cross-sectional dependence test, slope heterogeneity test, Westerlund co-integration test, fully modified least ordinary least square estimator, dynamic OLS estimator, and augmented mean group estimator are employed to conduct the robust analyses. The findings reveal that EPU and non-renewable energy consumption escalate ecological footprint, whereas GPR and renewable energy plunge ecological footprint. In addition, findings from the causality test reveal both uni-directional and bi-directional causality between a few variables. Based on the findings, we deduce several policy implications to accomplish the sustainable development goals in emerging economies.

Is Geopolitical Risk Powerful Enough to Affect Carbon Dioxide Emissions? Evidence from China

“…This posed new challenges for Chinese exports, economic growth and energy utilization. This is because rising political instability and tensions in other countries and regions are not conducive to sustainable economic growth [31]. From the perspective of mitigation effects, the reduction of energy consumption in economic production and related activities decreases CO 2 emissions.…”

“…Husnain et al [22] argued that China is the second most powerful economy and has been the center of geopolitical tensions recently. Anser et al [31] argued that, as part of the global climate change mitigation process, China has received sanctions related to CO 2 emissions.…”

“…There is some literature linking GPR and environmental quality. Anser et al [31] used ecological footprint to represent environmental performance in emerging nations, including China, and found that GPR would significantly decrease it and retard environmental degradation. Further, scholars have focused on GPR and CO 2 , with CO 2 being the variable chosen to represent environmental quality.…”

“Does Institutional Quality, Natural Resources, Globalization, and Renewable Energy Contribute to Environmental Pollution in China? Role of Financialization”

“…A stable financial system not only increases the efficiency of the financial sector but also contributes toward rapid economic development of a country ( 44 , 49 – 51 ). The development of the stock markets and financial institutions reduces financing expenses and eases the liquidity requirements of firms, thus it help firms to invest in new projects to expand production, stimulate energy demand and thus, in turn, can give rise to environmental pollution ( 52 – 54 ). Financial markets encourage the public to borrow loans from financial institutions and buy heavy weight vehicles that can be the principal cause of the increase in carbon emissions ( 44 ).…”

The anthropogenic consequences of energy consumption in the presence of uncertainties and complexities: evidence from World Bank income clusters

“…There is an extensive body of literature that investigated the carbon emission-economic growth link (Boleti et al, 2021 ; Adedoyin et al, 2021 ; Khan et al, 2021 ; Can and Gozgor, 2017 ; Satrovic and Dağ, 2019 ; Doğan et al, 2019 ; Tariq et al, 2017 ; Alola, 2019 ; Anser et al, 2021a ; Mehmood, 2021 ; Khan and Hou, 2021 ; Adedoyin et al, 2020 ; Muslija et al, 2020 ; Murshed et al, 2020 ; Ahmad et al, 2021 ; Chandio et al, 2020 ; Bese et al, 2020 ; Verbič et al, 2021 ; Satrovic and Muslija, 2019 ; Mujtaba and Jena, 2021 ; Adebayo, 2020 ). The environmental Kuznets curve (EKC) hypothesis was developed by Grossman and Krueger ( 1991 , 1995 ) to emphasise this nexus.…”