The role of G7 and BRICS country risks on critical metals: Evidence from time- and frequency-domain approach

Abstract

In the context of fierce international competition, country risks continue rising, conducting the supply of critical metals becomes increasingly unstable. The global supply security of critical metals is also facing severe challenges. This paper utilizes a novel TVP-VAR time-frequency connectedness approach to examine the spillover effect of country risk (political, economic, and financial risk) on critical metals in G7 and BRICS countries. The results show a strong connectedness of country risks on the return of critical metals. From the static perspective, the short-term spillover effects of BRICS political risk on critical metals are more significant, especially for tungsten and rare earth. In the long run, the US and UK are the dominant drivers of spillover effects, whereby their economic and financial risks exert a significant impact. The net spillover connectedness network shows that the BRICS countries are net exporters of political risk, mainly China and Russia. The G7 countries are emitters of economic and financial risk. From the dynamic perspective, the spillover effect of country risks on critical metals is time-varying and significantly enhanced during the crisis. The Russian-Ukraine war made Russia's political risk reach the strongest, and there is still a clear upward trend even in the long run. Our research findings are of great significance for national security and development, as well as for investors in formulating investment portfolios.