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

Abstract

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.

Keywords: CO2 emissions; East Asia; Economic policy uncertainty; Foreign direct investment; Renewable energy.