The interconnectedness and spillover effects among economic uncertainty, energy-related risks and sovereign risk in BRICS economies

Abstract

ABSTRACT Emerging economies experiencing energy-intensive growth face increased energy price volatility, which could fuel macroeconomic instability with possible implications on their debt repayment capacity. This study implements a quantile vector autoregressive model on a dataset collected between April 2011 and July 2024 to examine the interplay among economic uncertainty, energy-related risks and sovereign risk in BRICS economies. The empirical results show these risk factors exhibit strong interconnectedness under low- and high-risk profiles. Under a low-risk profile, energy risks are transmitters in all countries except Russia and India. Sovereign risk receives shocks in Brazil, India and South Africa but transmits shocks in Russia and China, whereas economic risk is a shock transmitter in South Africa and India and plays the receiver role in Brazil, Russia and China. In high-risk conditions, economic risk is a shock transmitter in Russia and India but receives shocks in Brazil, China, and South Africa; Sovereign risk receives shocks in all countries except China while energy risk is a transmitter across countries except Russia. Therefore, the dynamics of the studied risks are driven by individual country heterogeneities including risk profile, economic structure, market conditions and energy trade status. Policymakers should combine energy, economic and debt management policies to promote economic stability and build crisis resilience. In conclusion, debt management and investment in renewable energy are alternative policy instruments to promote creditworthiness in emerging countries.