How does economic policy uncertainty affect CO2 emissions? A regional analysis in China

Abstract

More recently, the COVID-19 pandemic outbreak has created massive economic policy uncertainty (EPU). EPU and its economic fallout have been a hot topic of study; however, the impact of EPU on CO 2 emissions has been seldom addressed to date. This paper investigates the effects of the EPU on CO 2 emissions. It elucidates the role of EPU in moderating the environmental regulation-CO 2 emissions nexus at the national and regional levels using the panel data model and provincial panel data from 2003 to 2017 in China. The main empirical results are as follows. The EPU has a negative impact on carbon emissions; however, this relationship is non-significant even at the 10% level in the central and western region datasets. Environmental regulation positively increases the CO 2 emissions implying that the green paradox occurs in the whole and western regions datasets. From the perspective of the moderating effect of uncertainty, EPU exerts a positive impact upon the environmental regulation-CO 2 emissions nexus in the whole and western region datasets. The moderating effect is not significant in the eastern and central regions. The results demonstrate that the re-examination of the EKC hypothesis is inconclusive. Kuznets relationship between economic growth and CO 2 emissions for the national, eastern, and central samples was confirmed. In contrast, CO 2 emissions monotonically rise as GDP grows for western datasets. Based on the overall findings, some policy implications were put forward. We recommend that the local government should consider EPU to improve the institutional environment. Further, different regions should implement various environmental policies according to regional conditions maximizing the emission reduction potential.

Impact of Economic Policy Uncertainty on Carbon Emissions: Evidence from 137 Multinational Countries

“…However, there are some gaps in the existing studies. Specifically, the conclusions are controversial (Gill et al, 2019;Shabir et al, 2021) [21,22], and while much of the literature has pointed out that EPU brings more environmentally adverse effects (Yu et al, 2021, Adedoyin andZakari, 2021) [19,23], a small number of scholars have argued that EPU does some good in reducing CO 2 emissions (Chen et al, 2021; Do gan and Güler, 2021) [24,25], and other researchers argue that there is no influence of EPU on CO 2 emissions (Abbasi and Adedoyin, 2021; Liu and Zhang, 2021) [26,27]. Additionally, most studies have utilized the EPU index given by Baker et al, (2016) [28] to measure EPU, but this index has some limitations in that it cannot reflect uncertainty related to political events and it is not calculated from a single base for different countries worldwide, which may bring about biased results (Adams et al, 2020;Atsu and Adams, 2021) [20,29].…”

Economic Policy Uncertainty, Social Development, Political Regimes and Environmental Quality

“…The coefficient of uncertainty * GDP is 0.076, which is significantly positive at 1%, suggesting that better economic performance would contribute to the reduction in the negative effect of EPU on environmental performance. This is mainly because better economic performance offers governments more power to deal with EPU; moreover, even under serious EPU, better economic performance can make it is possible for governments to allocate some fiscal expenditure to environmental protection, thus reducing the adverse environmental effects brought by EPU (Liu and Zhang, 2021) [ 39 ]. Aside from this, according to the environmental Kuznets relationship, pollution levels eventually fall as income increases.…”

“…For example, Abbasi and Adedoyin (2020) [ 36 ] examined whether the effects of EPU on carbon emissions are established in China by employing ARDL estimation based on the annual data from 1970 to 2018, and concluded that EPU cannot change the carbon emissions in China, which may be attributed to its sustainable corporate policies. Similarly, Liu and Zhang (2021) [ 39 ] offered a similar idea for the central and western region of China. On the other hand, Adedoyin and Zakari (2020) [ 36 ] proposed that the influence of EPU on CO 2 emissions is not constant short-term and long-term; specifically, while EPU reduces CO 2 emissions initially, it would increase the CO 2 emissions long-term.…”

“…Moreover, Doğan and Güler (2021) [ 38 ] empirically studied the relationship between EPU and carbon emissions by employing Parks–Kmenta estimation and panel data for G7 countries from 1997 to 2015; the result suggested that EPU would contribute to a reduction in the carbon emissions. Similarly, Liu and Zhang (2021) [ 39 ] proposed that EPU has a negative effect on CO 2 emissions in the easter region of China, by utilizing the data for China from 2003 to 2017 to empirically examine the relationship between EPU and CO 2 emissions.…”

Investigating the moderating role of economic policy uncertainty in environmental Kuznets curve for South Africa: Evidence from the novel dynamic ARDL simulations approach

“…However, the findings of these research are contradictory and diverse, depending on the methodological techniques used and the nations studied. EPU has been shown to improve environmental quality in a number of studies (Ahmed et al 2021 ; Chu and Le 2022 ; Ivanovski and Marinucci 2021 ; Liu and Zhang 2022 ; Gu et al 2021a ; Xin and Xin 2022 ; Zeng and Yue 2022 ; Chen et al 2021 ). For example, Ahmed et al ( 2021 ) reported that EPU decreases CO 2 emissions in the USA using the nonlinear autoregressive distributed lag (NARDL) technique for the period 1985–2017.…”