Effect of policy uncertainty on green growth in high-polluting economies

Abstract

Environmental degradation has become one of the major concerns of the international community and the most debated topic at international forums. Therefore, policymakers have turned their attention from the traditional concept of economic growth to the more sustainable concept of growth known as green growth. This study tries to analyze the asymmetric effect of economic policy uncertainty (EPU) on green growth in top polluted economies over the period 1994–2020. Furthermore, this study also controls the issue of cross-sectional dependence while estimating the effects of EPU on green growth. From the results of the CS-ARDL model, we confer that the linear estimate attached to the EPU is significant and negative, implying that any uncertainty hurts the progress of green growth. On the other side, in the nonlinear model, the estimate attached to the positive shock of EPU is negatively significant, and the estimate attached to the negative shock of EPU is insignificant. This result confirms that positive shock in the EPU is harmful to green growth, and the negative shock in EPU does not have a significant role in determining green growth. The findings propose that the economic policy uncertainty issue must be considered while formulating green growth policies.