Sustainable development: The impact of political risk, macroeconomic policy uncertainty and ethnic conflict

Abstract

We examine the impact of political risk, macroeconomic policy uncertainty, and social risk on sustainable development for a panel covering 47 developing economies from 1991 to 2020. We present an augmented green Solow growth model linking policy risk and uncertainty to sustainable development through their interaction with pollution abatement activities. We employ a political risk index to capture the composite impact of risk factors relevant to political rule and regulation, a macroeconomic policy index to evaluate the uncertainty associated with inflation, exchange rate, and fiscal policies and an index of ethnic fractionalization to appreciate social risk. The empirical results confirm that all the risk and uncertainty factors examined exert significant negative short- and long-run impacts on sustainable development. The findings highlight the importance of risk management as a key control policy when designing sustainability policies promoting pollution emissions abatement.