Geopolitical Risk Research Articles

Driving low-carbon mechanisms through smart investments in renewable resources and green finance initiatives among G20 nations

In light of the escalating concerns regarding climate change and environmental decline, major nations are actively exploring strategies to mitigate environmental harm and achieve future sustainability. The surge in economic expansion in developed economies is linked to an increase in CO2 emissions. Consequently, in their pursuit of carbon-neutral policies, these countries are increasingly turning towards renewable energy as a means to enhance resource conservation and efficiency. This research investigates the varied impacts of renewable energy investment, green finance, geopolitical risk, GDP growth, foreign direct investment, and gross fixed capital formation on the carbon emissions of G20 countries. The study uses the CUP-FM (Continuously Updated Fully Modified) and CUP-BC (Continuously Updated Bias-Corrected) estimators, which are sophisticated econometric approaches designed to handle non-stationary panel data and cross-sectional dependency, to produce robust long-term parameter estimates. The CUP-FM estimator adjusts for potential endogeneity and serial correlation, improving the accuracy of long-run relationships in panel data. The CUP-BC estimator provides bias-corrected estimates to further enhance the precision of these long-run connections.The long-term parameter estimates reveal a negative correlation between renewable energy investment, green finance, and carbon emissions. In contrast, foreign direct investment, gross fixed capital formation, GDP growth, and geopolitical risk are positively associated with CO2 emissions. This suggests that financial stability often leads to investments in carbon-heavy economic ventures, thereby implicating economic growth as a contributing factor to environmental degradation in G20 countries.

Dynamics of global energy, geopolitics, and climate policy on inflation: A cross-regional analysis

This study investigates the intricate dynamics between the Consumer Price Index (CPI) and three critical determinants—Global Price of Energy (GPE), Geopolitical Risk (GPR), and Climate Policy Uncertainty (CPU)—across Europe, the USA, and China from February 1992 to April 2023. Using advanced methodologies, including time-varying Granger causality tests and a connectedness approach, we reveal that CPI consistently acts as a net receiver of shocks. The Total Connectedness Index (TCI) demonstrates a persistent and evolving mutual influence among these variables. Geopolitical Risk is identified as a constant net transmitter of shocks, while the role of Global Price of Energy evolves over time, and Climate Policy Uncertainty shows variable interactions with CPI. Our pairwise directional connectedness analysis highlights GPR's dominant impact on CPI and unveils distinct patterns in the relationships between CPI and the other determinants. This comprehensive approach provides a detailed understanding of the temporal and directional dynamics of inflation, offering valuable insights for policymakers and scholars. These findings underscore the need for nuanced economic strategies to address inflationary pressures and inform future research on the complex interplay of global economic factors.

North Korea's threats and the cost of equity capital: The effect of information environments

We examine how the information environment affects the association between North Korea's threats and the cost of equity financing. Using a sample of Korean publicly-listed firms from 2012 to 2019, we find evidence that the adverse effect of North Korea's threats on the cost of equity capital is more significant for companies in less transparent information environments after controlling for other factors. Our findings contribute to the literature by identifying that the information environment affects geopolitical risk.

Geopolitical Risk and Corporate ESG Performance: Evidence from China

ABSTRACT This study investigates the impact of geopolitical risk (GPR) on corporate ESG performance. Using a large sample of A-share listed firms in China from 2009 to 2020, we find that firms tend to perform better in ESG practice when faced with high GPR. Analyzing the mechanisms, we find that firms engage in ESG more actively during uncertain periods to hedge risk and gain reputation. In addition, we find that the positive impact of GPR on ESG is more prominent for state-owned firms, heavily polluting firms, firms with managers holding strong environmental awareness, and firms located in highly foreign-trade-dependent areas. Finally, we find that corporate ESG practice can alleviate the adverse effects of GPR on a firm’s risk and reputation, and also enhance the interests of relevant stakeholders, thereby affirming the results of the mechanism analysis and the propositions in the stakeholder theory. Our results are robust to alternative GPR and ESG measures and different estimation methods and samples after correcting for endogeneity using an IV approach. This study highlights the value of ESG practice during uncertain periods.

Global geopolitical risk and corporate ESG performance

This study investigates whether and how the global geopolitical risk (GPR) impacts the environmental, social, and governance (ESG) performance of Chinese enterprises utilizing panel data of Chinese A-share listed enterprises from 2011 to 2020. The findings show that enterprises' ESG performance is negatively impacted by the global GPR. According to heterogeneity analysis, the global GPR has a more detrimental effect on ESG performance in non-state-owned enterprises, enterprises in the decline period, enterprises with higher institutional investor shareholdings, and enterprises without political connections. Additional mechanism analysis reveals that global GPR primarily weakens Chinese enterprises' ESG performance by increasing their financing constraints and reducing competitiveness. . In conclusion, our main findings are still valid after addressing endogeneity-related concerns and doing robustness tests.

Trading in Turbulent Times: Unravelling the Interplay between Trade Policy Uncertainty and Geopolitics in Russian Mineral Resource Supply

Trade policy plays a pivotal role in shaping import and export volumes within the global economy. However, the escalation of geopolitical tensions has posed significant challenges to the smooth flow of mineral resource trade. This study aims to analyse the consequences of global trade policy uncertainty (TPU) and various measures of geopolitical risk (GPR), including terror threats, war threats and nuclear threats (NCT), on Russian mineral exports (MEX). The analysis covers the period from January 2013 to December 2021. By employing sophisticated quantile regression methodologies, such as the cross-quantilogram (CQ) and cross-spectral quantile coherency (CQC) techniques, this study uncovers a compelling interaction between TPU and Russian MEX across different market conditions. Interestingly, TPU exerts a significantly positive impact on the export volumes of Russian mineral resources. In contrast, the presence of GPRs, particularly warfare and terrorism, proves to be detrimental to MEX during bullish market phases across various memory horizons. Surprisingly, NCT stimulates mineral trade during bearish market conditions, both in monthly and annual timeframes. These findings remain robust and consistent even when the CQC technique is employed. In light of these pressing geopolitical challenges, this study underscores the importance of developing sustainable mineral trade policies that foster enhanced global cohesion. It is crucial to address these challenges effectively to ensure the smooth and efficient flow of mineral resources in the international trade landscape. JEL Codes: C22, F13, F14, P28, Q21, Q27

The effect of geopolitical risk on the clean energy metals’ prices: the evidence of BRICS countries

ABSTRACT This study examines the effect of geopolitical risk on clean energy metal prices for Brazil, Russia, India, China and South Africa (BRICS) countries. Aluminum, cobalt, copper, nickel and zinc have been used as clean energy metals. The research period was determined as January 1990 to August 2021. Hatemi-J and Roca (2014) asymmetric causality test was used as the research method. According to the results, there is no causality between geopolitical risk of South Africa and cobalt prices for different cases. However, in general, there is causality between other clean energy metal prices and geopolitical risk in BRICS countries. Accordingly, the geopolitical risks of the BRICS countries both affect and are affected by these metal prices. This result suggests that changes in geopolitical risk of BRICS countries can provide useful information in explaining changes in clean energy metal prices. Likewise, changes in clean energy metal prices provide useful information in explaining the changes in geopolitical risk of BRICS countries. Therefore, policy makers need to develop new policies and strategies that can protect BRICS countries from clean energy metal price fluctuations in order to effectively use their renewable energy resources in their economic development.

Spillover relationships between international crude oil markets and global energy stock markets under the influence of geopolitical risks: New evidence

The VAR-LASSO connectedness method and VAR-X-LASSO connectedness method are employed in this study to explore the intricate spillover relationships between international crude oil markets and global energy stock markets while also examining the impact of geopolitical risks on these spillover relationships. By comparing the connectedness indices derived from the VAR-X-LASSO connectedness method and the VAR-LASSO connectedness method, this paper yields some intriguing empirical findings. First, the net transmitter of systemic shocks mainly appears in energy stock markets within developed countries. Second, we observed the net spillover direction from energy stock markets in most developed countries, especially those in the United States, Canada, France, Italy, Norway and Spain, to international crude oil markets, and the net spillover direction from international crude oil markets to energy stock markets in most developing countries. Third, geopolitical risks have been observed to strengthen the unidirectional spillover intensity from international crude oil markets to energy stock markets, and their influence intensified after 2015. However, there is minimal influence of geopolitical risks on the unidirectional spillover effects from energy stock markets to international crude oil markets.

Dancing between threats and conflicts: How Chinese energy companies invest amidst global geopolitical risks

Utilizing Chinese A-share listed energy companies from 2002 to 2021, we investigate the relationship between global geopolitical risks (GPR) and corporate investment through panel fixed effects and attempt to elucidate its channel. The main findings are as follows: Different types of GPR have varied impacts on corporate investment; global geopolitical acts (GPRA) significantly promote investment in Chinese energy companies, while global geopolitical threats (GPRT) substantially inhibit it. Channel analysis indicates that the capital hedging effect can explain the impact of GPR on the investment of Chinese energy companies. Moreover, the interactions between GPR and factors such as companies' commercial credit capability, valuation, operational risk, and degree of internationalization are statistically significant. These factors interact with GPRA and GPRT, jointly affecting the investment of Chinese energy companies. After employing a series of robustness tests, our results remain valid. Our research deepens a better understanding of how geopolitical risks influence the investment decisions of energy companies.

Resilience in the Face of Uncertainty: Navigating Supply Chain Challenges Through Proactive Risk Surveillance and Mitigation Strategies among SMEs in ASEAN countries

Background Supply chain risk management is crucial for the consumer products industry due to its vulnerability to uncertainties and risks. This study investigates the relationship between supply chain risks and performance among SMEs in the ASEAN countries. Supply chain performance, defined as meeting end-customer demands, involves ensuring commodity availability, on-time deliveries, and maintaining sufficient inventory and capacity across organizational boundaries from raw materials to the final consumer. Methods The study utilized a sample of 385 entrepreneurs from the consumer products industry in ASEAN countries. The research was analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM) to establish the correlation between supply chain performance and risks. Factors related to the ASEAN Economic Community (AEC) for economic integration and regional trade agreements were incorporated to understand the diverse economic development, infrastructure, and regulatory environments across nations. Results The analysis revealed a strong correlation between supply chain risks and performance. Entrepreneurs in the consumer products industry should collaborate closely with governmental organizations to address the unique challenges posed by regulatory landscapes, cross-border logistics, and geopolitical risks within the ASEAN region. Adapting to cultural nuances and market variations, along with optimizing logistics and infrastructure, are crucial for successful supply chain risk management. Conclusions Effective supply chain risk management significantly enhances the performance of the consumer products industry’s supply chain. Entrepreneurs in this sector should align their strategies with regional and national governments to proactively address issues and mitigate risks. Continuous monitoring and adaptive measures are necessary to handle emerging risks in the dynamic market landscape. The study provides valuable insights for policymakers, suggesting that supportive frameworks and policies are necessary to bolster SME capabilities in risk management. By fostering a collaborative environment between the public and private sectors, ASEAN countries can enhance overall supply chain resilience. Future research could explore sector-specific risk management practices and their impact on supply chain robustness, underscoring the imperative for SMEs to adopt proactive and integrated risk management approaches to thrive in a complex and evolving economic environment.

The Asymmetric Effects of Oil Prices on Stock Returns: Evidence from Hanoi Stock Exchange, Vietnam

This study is devoted to investigating the asymmetric effects of oil prices on stock returns for Hanoi Stock Exchange (HNX). The data used in this study are weekly series of HNX-Index, WTI crude oil prices and geopolitical risks (GPRs) Index covering the period from January 2, 2010 to December 31, 2023. This study employed a nonlinear Autoregressive Distributed Lag (NARDL) bounds testing approach to estimate the short-term and long-term asymmetric effects of oil prices on the market returns. We found that in the short-term, oil prices have negative asymmetric effects on the market returns. Specifically, one percent increase in positive changes of oil prices immediately leads to 0.0085 percent decrease in the market returns. However, one percent increase in negative changes of oil prices is associated with 0.1487 percent decrease in the market returns. In the long-term, the estimated results confirm that both the negative and positive changes of oil prices have significantly negative effects on the market returns. Finally, the results obtained from the error correction model (ECM) indicate that 81.54 percent of the disequilibria from the previous week are converged and corrected back to the long-term equilibrium in the current week.

Navigating Energy Market Cycles: Insights from a Comprehensive Analysis

In this article, we investigate the dynamics the intricacies of fluctuations during periods of economic expansion and contraction, and examining the connections between the length of energy cycles and the influential factors could affect them. Utilizing the extended BBQ algorithm, we firstly identify turning points and, then apply the Cox hazard Model to analyze factors that affect the cycle phases, including geopolitical conflict and economic situations over the period from January 1990 to July 2022. The results reveal the presence of asymmetry in growth phases, highlighting the need for policymakers to understand the factors driving these phases. Market expansion is driven by positive interest rate and US dollar shocks, while stability relies on competent management. During economic contractions, energy costs are influenced by economic growth. Geopolitical risks and economic uncertainty require effective risk mitigation, and policy changes significantly impact the energy market during expansion phases. The study also suggests that Conferences of Parties (COP) meetings have a nuanced influence on the energy market, warranting further research.

Bitcoin market connectedness across political uncertainty

In this study, we examine the risk transmissions between the bitcoin market, political uncertainty, and various financial market uncertainty measures. We find that the returns and volatilities of Bitcoin are the receivers of the information from political uncertainty measures, such as the geopolitical risk index and the party conflict indices. These effects are strong during periods of financial stress. Further, the financial market uncertainty measures switch between the roles of transmitters and receivers over time. Our results further show that Bitcoin has hedging and safe-haven properties that mitigate political uncertainty. Our results provide a full understanding of how political uncertainty is transmitted to the Bitcoin market.

The relative importance of economic policy uncertainty and geopolitical risk on U.S. REITs returns

PurposeOur aim in this study is to investigate the relative importance of the economic policy uncertainty and of the geopolitical risk on U.S. REITs (Real Estate Investment Trusts) returns with a special focus on the different real estate sectors.Design/methodology/approachWe use an augmented Fama-French (1993)’s asset pricing model, including economic policy uncertainty indices (EPU), introduced by Baker et al. (2016), and geopolitical risk indices (GPR) recently developed by Caldara and Iacoviello (2022), to price the potential risk factors for U.S. Nareit indices returns. To obtain robust economic results, we correct for the problems of errors-in-variables in linear asset pricing models; we advocate the use of higher moments estimators as instruments in a generalized method of moments (GMM) framework.FindingsOur results report that economic policy uncertainty (EPU), and geopolitical risk (GPR) are priced for the different Nareit sectors for the last three decades. The GPR index stands as a relevant risk factor. The coefficient estimates are low compared to Fama-French risk factors. They are higher for Shopping Centers, Retail and Region Malls and lower for Health Care and Lodging/Resorts. EPU indices are also priced and less statistically significant. Health Care sector, followed by Shopping Centers and Retail are the most policy-sensitive sectors.Practical implicationsIn their “2023–2024 Top Ten Issues Affecting Real Estate” “political unrest and global economic health” is ranked 1 issue by the Counselors of Real Estate. Our results report that economic policy uncertainty and geopolitical risk are priced for the different Nareit sectors. They suggest implications for investors, insurers, bankers, policymakers and other stakeholders. The geopolitical risk index (GPR) stands as a relevant and significant risk factor for REITs returns.Originality/valueBased on parsimonious robust asset pricing models, the results shed a new light on the relative importance of geopolitical risk and economic policy uncertainty in the real estate sector, with a special focus on the different U.S. REITs sectors. They suggest possible implications for investors, insurers, bankers, policymakers and other stakeholders in a context marked by higher uncertainty shocks and geopolitical risks.

Mandatory climate disclosures: impacts on energy and agriculture markets

PurposeWith the rise of mandating climate-related disclosures (CRD), this paper aims to investigate how energy and agriculture markets are exposed to climate disclosure risk.Design/methodology/approachUsing the multivariable simultaneous quantile regression and data from 1 January 2017 to 29 February 2024, the authors examine daily and monthly responses of energy and agriculture markets to climate disclosure risk, energy risk, market sentiment, geopolitical risk and economic policy risk. The sample covers the global market, Australia, Canada, European Union (EU), Hong Kong, Japan, New Zealand, Singapore, the UK and the USA.FindingsThe results show that climate disclosure risk creates both positive and negative shocks in the energy and agriculture markets, and the impacts are asymmetric across quantiles in different economies. The higher the climate disclosure risk, the greater impact of crude oil future on the energy sector in North America (Canada and the USA) and Europe (EU and the UK), but no greater effects in Asia Pacific (Australia, New Zealand and Singapore). The agriculture sector can hedge against economic policy and geopolitical risks, but it is highly exposed to climate disclosure and energy risks.Originality/valueThis study timely contributes to the modest literature on the asymmetric effects of climate disclosure risk on the energy and agriculture markets at the global and national levels. The findings offer practical implications for policymakers and investment practitioners in understanding financial effects of mandating CRD to diversify risks depending upon market conditions and policy uncertainty.

Biden Administration Trade Cooperation Platforms

The article examines trade policy initiatives of the Biden administration. In a complex climate of domestic political polarization, the United States compete with China and defends its position in international markets. These challenges affect the areas of high technologies, digital economy, information and communications sector, renewable energy sources, and infrastructure. At the same time, an equally important problem in the context of increased geopolitical risks remains increasing the reliability of logistics and production chains, primarily for microelectronics. Addressing these challenges requires the creation of appropriate platforms that allow the United States to interact with partner countries. Within these frameworks, the United States intends to promote the priorities of the Biden administration: standards in the field of high technologies, ensuring the energy transition, protecting working conditions and inclusion. Another crucial area is promoting the fight against corruption, ensuring transparency of business processes in partner countries and training personnel. Completing these goals should attract American business and investment to the Pacific and Indian Ocean regions and Latin America. These should also increase American leverage in its strategic competition with China. At the same time, the formats of cooperation created by the United States must be insured against their internal political situation and the risks of interruption of work when there is a change of presidential administrations. In less than four years of its work (2021–2024), the Biden administration has proposed three platforms: the Global Infrastructure and Investment Partnership, the Indo-Pacific Economic Framework for Prosperity, and the Partnership of the Americas for Economic Prosperity. The results of their implementation are different. This article examines the two last mentioned regional platforms and describes conditions for their creation, work prospects, probable risks, and some results.

Does Geopolitical Risk Endanger Energy Resilience? Empirical Evidence from Cross-Country Data

Does Geopolitical Risk Endanger Energy Resilience? Empirical Evidence from Cross-Country Data

Does geopolitical risk alleviate the “sticky” cost behavior of firms? Evidence from India

Does geopolitical risk alleviate the “sticky” cost behavior of firms? Evidence from India

Geo-political risks, uncertainty, financial development, renewable energy, and carbon intensity: Empirical evidence from countries at high geo-political risks

Geopolitical risks and uncertainty negatively affect the economy and environmental quality. High geopolitical risks and high uncertainty increase carbon emission intensity by increasing dependence on fossil fuels. However, research in this area is still in its infancy and more empirical evidence is needed to justify the causal link. This research examines the causal mechanism linking geopolitical risk, uncertainty, financial development, renewable energy, and carbon intensity in a sample of eighteen countries with high geopolitical risk between 1985 and 2021. The selected countries have a high intensity of geopolitical risks due to internal and external conflicts that have worsened in recent years. We employ cointegration techniques from Hatemi-J [1] and Maki [2] in the presence of structural breaks, fully modified ordinary least squares (FMOLS), canonical cointegration regression (CCR) models, and static time-variant Granger causality (1969) test. We find robust empirical evidence that geopolitical risk, financial development, renewable energy, uncertainty, and carbon intensity have a cointegrating relationship in the presence of structural breaks. Results from FMOLS and CCR models indicate that carbon intensity responds differently to changes in geopolitical risk, renewable energy, uncertainty, and financial development. Environmental and energy policymakers should mitigate carbon intensity through long-run rather than short-run mechanisms to achieve SDG12 and SDG13.

Geopolitical risk perceptions

Geopolitical risk cannot be measured in a universal way. We develop new geopolitical risk indicators relying on local newspaper coverage to account for different perceptions. Using Russia as a case study, we demonstrate that geopolitical risk shocks identified from local news sources have significant adverse effects on the Russian economy, whereas geopolitical risk shocks identified from English-language news sources do not. We control for restricted press freedom by analyzing state-controlled and independent media separately. Employing a novel Russian sanctions index, we illustrate that geopolitical risk shocks propagate beyond the sanctions channel. Still, sanctions worsen the inflationary impact of geopolitical risk shocks substantially.