Impact of economic policy uncertainty, geopolitical risk, and economic complexity on carbon emissions and ecological footprint: an investigation of the E7 countries.

ABSTRACT

There is a plethora of studies on the energy-consumption-environmental-quality nexus. Nevertheless, empirical research on the impact of global uncertainties on environmental quality is lacking. This study contributes to the literature by examining the impact of economic policy uncertainty (EPU), geopolitical risk (GPR), and economic complexity on the ecological footprint and carbon emissions of E7 economies for the period 1995-2018. Our empirical results indicate a long-term relationship between economic complexity, EPU, GPR, energy consumption, and two environmental quality indicators, carbon dioxide emissions and ecological footprint. In the long run, a divergence from disequilibrium takes 3 years to return to the equilibrating position. The environmental effects of key determinants are different in terms of direction, magnitude, and time span. Specifically, an inverted U-shape describes the relationship between economic complexity and environmental degradation in the long-term only, which confirms the environmental Kuznets curve (EKC) hypothesis. The environmental effects of EPU and GPR are harmful in the short run but prove to be beneficial in the long run. Higher energy consumption significantly degrades environment quality as expected. Based on these findings, the paper provides several useful suggestions for policymakers in the context of E7 countries.