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

TLDR

Economic policy uncertainty and geopolitical risk have risen worldwide, affecting both economic and environmental outcomes, yet their specific influence on environmental degradation remains underexplored. This study investigates how EPU and GPR affect the ecological footprint in selected emerging economies. The authors employ cross‑sectional dependence, slope heterogeneity, Westerlund cointegration tests, and FMOLS, DOLS, and AMG estimators to conduct a robust analysis. Results show that EPU and non‑renewable energy consumption raise ecological footprint, while GPR and renewable energy lower it, with both uni‑ and bi‑directional causality among variables, informing policy for sustainable development.

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.