The impact of economic policy uncertainty on carbon emissions: evaluating the role of foreign capital investment and renewable energy in East Asian economies

Khan, Yasir; Hassan, Taimoor; Kirikkaleli, Dervis; Xiuqin, Zhang; Shukai, Cai

The impact of economic policy uncertainty on carbon emissions: evaluating the role of foreign capital investment and renewable energy in East Asian economies

2022

Khan, Yasir | Hassan, Taimoor | Kirikkaleli, Dervis | Xiuqin, Zhang | Shukai, Cai

This study aims to investigate the relationship between carbon emissions (CO₂) and economic policy uncertainty for East Asian countries. During recent decades, climate change has become a severe issue globally. To our understanding, the impact of economic policy uncertainty (EPU) on CO₂ emissions has not been thoroughly studied in the environment-energy literature. To overcome this research gap, this study explores the link between EPU, CO₂ emissions, foreign direct investment (FDI), and renewable energy for the panel of four East Asian economies, namely, China, Japan, South Korea, and Singapore, from 1997 to 2020. We used second-generation econometric estimations to confirm cross-sectional dependence, cointegration, and stationarity among the selected variables. This study finds that economic policy uncertanity (EPU), trade, and GDP have a positive correlation with carbon emissions. However, FDI and renewable energy consumption boost the quality of the environment of East Asian economies. The outcomes of the Dumitrescu–Hurlin panel causality estimation revealed two-way association between CO₂ and economic policy uncertainty, CO₂ and energy consumption, CO₂ and economic growth, and CO₂ and trade. Afterward, we use the FMOLS estimations for robustness check. Based on the inclusive outcomes, we draw substantial suggestions for decision-makers and urge them to consider the potential negative effects of EPU on CO₂ emissions policies. In addition to this, if policymakers seek to simultaneously control EPU and CO₂ emissions, they should work out for alternate ways such as the use of green technology related to energy, foreign capital investment, and renewable energy consumption to mitigate CO₂ emissions.

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