Effects Of Geopolitical Risks Research Articles

The effect of geopolitical risk and green technology on load capacity factors in BRICS

This study explores the interaction between geopolitics, natural resources, and load capacity factors (LCF) within BRICS countries. Using fixed effects, random effects, quantile regression, and Driscoll Kraay Standard Error approaches, we found that for every 1% increase in green technology adoption, LCF decreased by 0.14%–0.54%. This effect suggests that green technologies may reduce LCF. Geopolitical risk positively influences LCF, with a 1% increase resulting in a 0.14%–0.48% rise across quantiles, thus enhancing reliability and sustainability. Furthermore, economic growth, renewable energy, and natural resources rents enhance the ratio of biocapacity to ecological footprint.

Effect of geopolitical risk on resources prices in the global and Russian-Ukrainian context: A novel Bayesian structural model

This study evaluated the impact of geopolitical risk (GPR) on natural resources (NRs) by employing monthly from January 1990 to January 2023 and daily data from 3rd January 2022 to 31st March 2022. The outcomes using wavelet QQ and novel Bayesian structural model reveal that GPR has a more profound impact on oil prices (in a quantile range of 0.4–0.8), natural gas prices (range of quartiles from 0.4 to 0.8) and gold prices (in a range of lower to upper quantiles) exhibiting that they are more sensitive to geopolitical uncertainties at all levels. The effects of geopolitical risk are also prominent on palm oil in lower to upper quantile (0.2–0.7) and urea in medium or upper quantile, showing that higher uncertainty drives their prices. In contrast, the response of iron ore (IO) was observed only in upper quantiles (0.7–0.8). The results of the causal analysis reveal that the Russia-Ukraine conflict positively impact NRs prices and that there was a rapid divergence from counterfactual projections. Our findings bear significant implications for sample economies highlighting the alternatives to cope with the GPR and its consequences for natural resource prices.

Europe's energy crisis: Are geopolitical risks in source countries of fossil fuels accelerating the transition to renewable energy?

This paper provides first empirical evidence on the effect of geopolitical risks in fossil fuel supplier countries on renewable energy diffusion in fossil fuel importing countries and the mediating roles of rising electricity prices and high import dependence. For this end, aggregate measures of geopolitical risk that countries are exposed to through fossil fuel imports are determined. This is done by combining detailed data on bilateral trade patterns for coal, oil, and natural gas of 37 countries in Europe with that on geopolitical risks in supplier countries. Using an instrumental variable approach, the study reveals that geopolitical risks in supplier countries tended to foster renewable energy diffusion in Europe during the period 1991–2021. The effects are especially pronounced for geopolitical risks related to coal and natural gas imports, while the importance of risks related to particular fossil fuels differed for the build-up of the individual renewable energies, i.e. wind, solar, and biomass. Rising electricity prices and high import dependence, particularly for coal, partially amplified the effects on renewable energy diffusion. Despite the high import dependence, natural gas appears to have played in part a role as a bridging technology for energy transition.

Effect of geopolitical risk and economic uncertainty indices on renewable energy

In this study, the relationships between five renewable energy sub-sectors markets and the geopolitical risk (GPR) and economic uncertainty indices (EUI) were examined using daily data from March 30, 2012, to April 1, 2022. Convergent cross mapping results show that the renewable energy indices have definite relationships with the GPR and EUI. The renewable energy indices show differences in response directions, speed and trends for a standard information difference impulse from the GPR and the EUI. A positive dynamic conditional correlation between renewable energies and EUI was observed in the first and second waves of the COVID-19 outbreak. In contrast, there was a relatively decreased effect for two risk indices during the Russia–Ukraine conflict of February–March 2022. Our results show that renewable energy may act as a time-varying hedge against economic uncertainty and GPR owing to its safe-haven properties at various scales. Moreover, building more secure and reliable renewable energy systems can help countries to increase their energy independence, which protects them against the risks of political and economic uncertainty.

Relationships among geopolitical risk, trade policy uncertainty, and crude oil import prices: Evidence from China

This study is the first to take the crude oil import price of a specific country and the detailed economic policy uncertainty index as an example to analyze the nonlinear time-varying and asymmetric effects between geopolitical risk, trade policy uncertainty, and the crude oil import price using the Time Varying Parameter-Stochastic Volatility-Vector Auto Regression(TVP-SV-VAR) model and the variance decomposition method. Three main conclusions were drawn. First, there is a significantly asymmetrical two-way spillover effect between geopolitical risk and trade policy uncertainty, significantly affecting the crude oil import price in the short term. Recently, the effect's direction and intensity have changed. The crude oil import prices depend more on the effect of geopolitical risk than that of trade policy uncertainty. Second, the impulse response to shock is remarkably volatile at different times. The volatility gradually tends to stability. At different times, the variables differ in response to other variables, the direction of response, and the time needed to resume the steady state. Third, the variables in the system fairly interact with each other. The shock of a variable contributes significantly to its volatility and increases as the length of the prediction period grows. This shock contributes less significantly to the volatility of other variables and decreases as the length of the prediction period grows. The conclusions are significant for national energy security and stable economic growth.

The Effect of Geopolitical Risk on Income Inequality: Evidence from a Panel Analysis

The Effect of Geopolitical Risk on Income Inequality: Evidence from a Panel Analysis

Do geopolitical risk, green finance, and the rule of law affect the sustainable environment in China? Findings from the BARDL approach

Keeping a sustainable environment in this era seems unrealistic due to numerous environmental factors; among those, carbon emission is the most daunting element to imbalanced the global sustainable environment. Such complications motivate the present authors to investigate the role of geopolitical risk, green finance, and the rule of law in attaining a sustainable environment in China. The data series of the years from 1995 to 2020 is tested through the Bootstrapped ARDL method under the theoretical framework of EKC theory. Before employing the BARDL technique, the descriptive analysis and unit root test is tested on the data to check the normality and validity of the data set. Afterward, the BARDL method for long- and short-run cointegration is analyzed based on the size and weak power characteristics. Finally, the Granger causality test proposed by Troster et al. (2018) is examined to check the cause and effect of geopolitical risk, green finance, and the rule of law with a sustainable environment. The Granger test identified the unidirectional causality among CE to GFIN and LAW, although other variables show the bi-directional causality. However, the results indicate the positive association of GPD and GPR with CE (carbon emission) in China's long-run and short-run data. A significant and negative relationship between the GFIN, GDP square, and the rule of law with CE is analyzed in both the long and short-run on the grounds of China's economy. In addition, the CUMSUM and CUMSUMsq test confirms the stability and reliability of the model. Furthermore, based on the findings, practical implications and limitations are developed to endure a sustainable environment in China.

Effects of Geopolitical Risks on Countries’ Trade Flows: A Nonlinear ARDL Analysis

In this study, the effects of geopolitical risks (GPR) on countries’ trade flows are examined with the nonlinear ARDL method by using the data of 11 countries for 1993M01 – 2021M08 periods. According to the findings, positive GPR shocks reduced exports in Turkey, Russia, China, South Africa, Argentina, and Israel, whereas they reduced imports in Turkey, Russia, South Africa, and Israel. Negative GPR shocks increased exports in Russia, China, South Africa, Argentina, and Israel, whereas they increased imports in Mexico, China, and Argentina. It was determined that the effects of GPR on exports are symmetrical in Turkey, Russia, South Africa, Argentina, and Israel, whereas they are asymmetrical in Mexico, South Korea, India, Brazil, China, and Indonesia. Moreover, we find that the effects of geopolitical risks on imports are symmetrical in all countries. Increases in the REER decreased exports in Turkey, Mexico, India, China, Indonesia, South Africa, Argentina, and Israel, whereas they increased imports in Turkey, South Korea, Russia, Brazil, and Indonesia and decreased imports in Argentina and Israel. Increases in the world income increased exports of all countries, whereas increases in the countries’ own national income increased imports in Turkey, Mexico, South Korea, Russia, India, Brazil, Argentina, and Israel.

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

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.

Do the carry trades respond to geopolitical risks? Evidence from BRICS countries

This paper aims to analyze the implications of geopolitical risks on the return and volatility of carry trade transactions in the context of BRICS countries for the period 2006–2020. Fixed effects regressions considering the sample countries as a single portfolio document that geopolitical risks are correlated with volatility, while the results are inconclusive for returns. The non-parametric time-varying coefficients panel data estimations further indicate that the effect of geopolitical risks on carry trade volatility is amplified during the Global Financial Crisis and the post-2016 episode. Moving to the disaggregated data, the time-varying robust Granger causality test of Rossi and Wang (2019) show that geopolitical risks have a significant in-sample predictive power for both carry trade return and volatility during a myriad of sub-periods, which can not be captured by standard constant parameter techniques in the presence of instabilities. Overall, our empirical results suggest that the exposure to geopolitical risks should be taken into account by global investors for risk diversification purposes when entering carry trade positions in BRICS countries.

Effects of geopolitical risks and political uncertainties on stock markets: Country specific new generation panel data analysis for developing Asian countries

In general, there are strong and meaningful relationships between risks and uncertainties, and economic activities. In this context, geopolitical risks (GPR) and global economic and political uncertainties (WUI) can significantly affect financial markets and investor behavior. In this study, the effects of GPR and WUI on stock markets for 10 developing Asian countries were investigated for 2001:M07-2020:M12 period. Cross-section dependency was examined with LM, 𝐿𝑀𝑆 , 𝐶𝐷 and 𝐿𝑀𝐵𝐶 tests, series stationarity with Hadri and Kurozumi (2012) test, cointegration relations with Westerlund (2006) cointegration with multiple structural breaks method, and regression analyzes with Eberhardt and Bond (2009) method. It was determined that high GPR decreases the stock market index in Turkey, Korea, Russia, Indonesia and Malaysia, whereas it increases in India, Thailand and Philippines. It was found that high WUI decreases the stock market index in Korea, China, Indonesia and Thailand, whereas it increases in Turkey, India and Malaysia. On the other hand, while the stock market returns of the change in GPR decreases the stock market returns in Turkey, Korea, Russia, Indonesia and Malaysia, it increases in India, Thailand and Philippines. It has been determined that change in WUI decreases the stock return in Korea, China, Indonesia and Thailand, and it increases in Turkey, India and Malaysia. It was also observed that changes in GPR increases the volatility of the stock markets in India, Thailand and Philippines, and it decreases in Turkey, S. Korea, Russia, Indonesia and Malaysia. While the effects of change in WUI increases stock market volatility in Turkey and Malaysia, it decreases in Korea, China, Indonesia and Thailand. As the results achieved are heterogeneous, investors should avoid a basket trading strategy in these countries. Country-specific causality test was carried out with the Konya (2006) method, and it was observed that there are causal relationships between high WUI and stock market index, high WUI and stock market return in Turkey. Similarly, causal relationships were determined between high WUI and stock market index in India, between change in WUI and stock market index volatility in Philippines, between high GPR and stock market index, change in GPR and stock market return in Hong Kong. Causal relationships for all countries in the panel were examined using the Dumitrescu and Hurlin (2012) method, and causality was only found between high WUI and stock market index.

Effects of Geopolitical Risks on Gold Market Return Dynamics: Evidence from a Nonparametric Causality-in-quantiles Approach

ABSTRACT This study uses a nonparametric causality-in-quantiles approach to investigate the causal relationship between the gold market and geopolitical risks from 4 January 2000, to 17 November 2017, using high-frequency data. The results indicated that geopolitical risks affect volatility rather than returns in the gold market. We also decompose intraday volatility into continuous and discontinuous jump components and find that geopolitical risks have stronger causality with the jump component under bear and normal market conditions. The results show, moreover, that the effects of geopolitical risks on realized volatility are asymmetric. Lastly, we divide the entire sample into four major geopolitical events (i.e. the 9/11 terrorist attacks, Irap invasion, the Russia-Ukraine crisis, and Paris attacks) and find that the effect of these events on the gold market varied by type and scope.

The effect of geopolitical risk on economic growth: Empirical evidence from the Fragile Five Countries

Ülkeler arasında meydana gelen büyüme farklılıklarının sahip olunan nitelikli işgücü, teknoloji düzeyi, doğal kaynaklar, siyasi ve coğrafi etkenlerin yanı sıra risk düzeyi gibi birçok sebebi vardır. Bu kapsamda çalışmada Kırılgan Beşli Ülkeler için jeopolitik riskin ekonomik büyüme üzerindeki etkisi ampirik olarak incelenmiştir. Çalışma, 1985-2017 dönemi kırılgan beşli ülkeleri içeren panel veri seti yardımıyla ve Genişletilmiş Ortalama Grup (Augmented Mean Group) Tahmincisi yöntemi kullanılarak analiz edilmiştir. Çalışmada jeopolitik riskin ekonomik büyüme üzerindeki etkilerini belirleyebilmek için, kişi başına Reel GSYİH ile jeopolitik risk endeksi, sabit sermaye yatırımları ve işgücü arasındaki ilişki tahmin edilmiştir. Elde edilen ampirik sonuçlara göre, kırılgan beşli ülkelerinde jeopolitik riskin ekonomik büyüme üzerindeki etkisi negatif ve istatistiki olarak anlamlı olarak bulunmuştur. Öte yandan işgücü ve sabit sermaye yatırımlarının ekonomik büyüme üzerindeki etkisi ise pozitif ve istatistiki anlamlı olarak gözlenmiştir.

The impact of economic uncertainty and geopolitical risks on bank credit

This paper compares the effects of economic uncertainty and geopolitical risks on bank credit growth. Using a sample of 2439 banks from 19 countries for the period of 2010–2019, our findings indicate that economic uncertainty causes a significant decrease in overall bank credit growth while no such significant overall effect of geopolitical risks is documented. Further analysis on loan types shows that the highest negative impact of economic uncertainty is observed on corporate loans. Geopolitical risk, however, dampens consumer and mortgage loans. Additional analyses on bank heterogeneity reveal that the credit behavior of foreign and publicly listed banks are more immune to such risks.

Structure dependence between oil and agricultural commodities returns: The role of geopolitical risks

The link between energy and agricultural markets have been studied extensively in the last two decades. Nonetheless, the literature fails to consider the effects of geopolitical risks (GPRs), geopolitical risks due to acts and GPRs due to threats in studying the link between the two markets. Addressing these issues, we examine the dependence between crude oil prices and agricultural commodities (oats, corn, wheat and soybean) for a period starting from April 4, 1990, to February 15, 2019. Our study used copula-based techniques to study the co-movement. We find that strong co-movements between energy markets and agricultural markets, which are negatively influenced by GPRs. Hence, suggest the ability of agricultural commodities, particularly corn, oats and wheat, to act as a hedge against oil returns downturn resulting from geopolitical unrest. This evidence of hedging is further vindicated, when we observe that agricultural and oil markets are negatively correlated when the former is bullish and the latter bearish.

The Impact of Economic Uncertainty and Geopolitical Risks on Bank Credit: Evidence from Emerging Economies

This paper provides a comparison of the effects of economic uncertainty and geopolitical risks on bank credit growth. We use the World Uncertainty Index (WUI) proposed by Ahir et al. (2018) and Geopolitical Risk Index (GPR) introduced by Caldara & Iacoviello (2018) for the measures of economic uncertainty and geopolitical risks, respectively. Our sample is composed of 2,439 banks from 19 emerging economies for the period of 2010-2019. By using fixed effects and dynamic panel data estimation techniques with GMM estimators, we find that economic uncertainty causes a decrease in overall bank credit growth while no effect of geopolitical risks is documented. Further analysis on the growth of different loan types (consumer, corporate, and mortgage) shows that economic uncertainty hampers the growth of all loan types considered in the paper however, the highest impact is observed on corporate loans. Meanwhile, geopolitical risk dampens consumer and mortgage loans but not corporate loans. Additional analyses on bank ownership and heterogeneity imply that the credit behavior of (1) foreign banks, (2) publicly listed banks, and (3) banks with foreign subsidiaries are immune to economic uncertainties.

The Effect of Geo political risk on China’s OFDI: A Research Based on Countries along the line of The Belt and Road Initiative

China's overall investment in ASEAN, Western Asia and Central Asia has been relatively large since the "one belt and one way" initiative, while the countries in Central and Eastern Europe and South Asia are less. Geopolitical economic risk is an important factor. In this paper, we use the inventory data of China's direct investment in the "one belt and one road" country for 2005-2013 years, the geopolitical risk index calculated by each sub index score of geopolitical risk released in ICRG, and the data of the system's scoring system of the world bank's development index database issued annually. Component analysis and fixed effect stepwise regression model are used to explore the impact of geopolitical risk on China's OFDI along the "one belt and one road" area. The results show that geopolitical risk has a direct negative effect on outward FDI, that is, China tends to invest in countries (regions) with higher geopolitical risk, which may be caused by foreign policy and resource endowment; further analysis found that factors of exchange rate index, per capita GDP, resource endowment, infrastructure, economic and legal freedom positively promote OFDI, while R&D expenditure has a negative impact on OFDI, which may be due to R&D delay. Therefore, we need to stabilize the political and economic relations among the countries along the belt and road, increase the transparency of investment information of the host country, and strengthen the enterprise's self-awareness.

Geopolitical risk, uncertainty and Bitcoin investment

We investigate the impact of geopolitical risk, global and US economic policy uncertainty on the structure of Bitcoin correlation with various financial and commodities asset classes. We further investigate the impact of the aforementioned factors on the volatility and risk premium of Bitcoin investment. We find that both geopolitical risk and global economic policy uncertainty command a risk premium, particularly in distress market conditions. Moreover, during the period of high policy uncertainty and worsening economic conditions, Bitcoin investors can only hedge their portfolio with gold, not with other financial assets. Our results highlight that the effect of geopolitical risk, global and US economic policy uncertainty is far more significant during unfavorable economic conditions.

What are the categories of geopolitical risks that could drive oil prices higher? Acts or threats?

This study characterizes the oil market as a nonlinear-switching phenomenon and examines its dynamics in response to changes in geopolitical risks over low- and high-risk scenarios. We separate the shocks due to geopolitical acts from those due to geopolitical threats to address whether the serious effects of geopolitical risks are mostly due to increased threats of adverse events or to their realization as acts. While we find the acts to generate a positive and strong impact on oil price dynamics, the effect of threats appears to be moderate or non-significant. Imperfect information in the oil price determination, the history of oil supply disruptions emanating from geopolitical events, the continued rise in populism in the world, oil market volatility, multifractility and the time-varying degree of weak-form efficiency have been advanced to explain the unforeseen responses of oil prices to geopolitical threats. To accommodate recent oil-related events, we construct a composite geopolitical risk indicator by accounting for contemporaneous sources of geopolitical risks, namely global trade tensions, US-China relation risks, US-Iran tensions, Saudi Arabia’s uncertainty and Venezuela’s crisis. The combined effects have an outsized impact on oil prices.

Geopolitical risks and stock market dynamics of the BRICS

This paper examines the effect of geopolitical uncertainty on return and volatility dynamics in the BRICS stock markets via nonparametric causality-in-quantiles tests. The effect of geopolitical risks (GPRs) is found to be heterogeneous across the BRICS stock markets, suggesting that news regarding geopolitical tensions do not affect return dynamics in these markets in a uniform way. GPRs are generally found to impact stock market volatility measures rather than returns, and often at return quantiles below the median, indicating the role of GPRs as a driver of bad volatility in these markets. While Russia bears the greatest risk exposure to GPRs in terms of both return and volatility, India is found to be the most resilient BRICS nation in the group. Noting that geopolitical shocks and in particular terrorist incidents are largely unanticipated, our findings underscore the importance of a strong financial sector that can help return the market to stability and an open economy that allows local investors to diversify country-specific risks in their portfolios.