Economic policy uncertainty, geopolitical risks, energy output and ecological footprint—Empirical evidence from China

Abstract

Economic policy uncertainty (EPU) reduces energy consumption and the use of pollution intensive commodities, which not only relieves environmental degradation, but also hinders investment in renewable energy and R&D, and leading to environmental degradation. Geopolitical risks (GPRs) result in a sharp drop in economic growth and energy consumption, and hinder environmental degradation. In addition, they can bring about a decrease in R&D, innovation and renewable energy, and will further exacerbate environmental degradation. By using the monthly data from Jan. 2000 to Dec. 2017 of China, a five-variable time varying parameter stochastic volatility vector auto regression model (TVP-VAR) of EPU, GPRs, industrial added value growth rate, crude oil growth rate and ecological footprint (EFOOT) is established. According to the results of the model, the conclusions can be drawn as follows : (1) EFOOT has a positive feedback on EPU in short, medium and long term, marking the investment effect of EPU is greater than consumption effect. (2) EFOOT has a negative feedback on GPRs in short, medium and long term. (3) The utilization characterized by the growth rate of industrial added value and crude oil has a negative impact on EFOOT. It is worth noting with the steady improvement of China’s economy, the further improvement of economic strength and the high attention to environmental protection from 2015, the impact of EPU and GPRs on the EFOOT began to weaken.

Keywords

• Economic policy uncertainty
• Geopolitical risk
• Ecological footprint
• TVP-VAR model