The effect of geopolitical risk on environmental stress: evidence from a panel analysis.

Abstract

The current paper concentrates on whether geopolitical risk can create environmental stress or not. It empirically explores the geopolitical risk effect on energy and carbon intensities of human well-being. Our paper postulates that geopolitical risk's impacts change over time because of the continuous amendments in the decision process through the geopolitical events' reoccurrence and the interaction with unobserved variables or the time-specific disturbances. Thus, our paper uses the two-way fixed Prais-Winsten regression approach to measure this dynamic relationship period yearly. It extracts evidence from 18 countries worldwide during the period (1992-2018). It finds that the effect of geopolitical risk on environmental stress is changing between positive and negative signs. The results show that geopolitical risk is biased toward reducing environmental stress or supporting environmental sustainability. From a policy implication side, policymakers and scholars should pay more attention to understand how geopolitical risk effects evolve on the country and the international levels and how to manage the geopolitical events to encourage their positive impacts on the environment.