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

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.

Automated summary

The study found that economic policy uncertainty, trade, and GDP are positively correlated with carbon emissions, while foreign direct investment and renewable energy consumption contribute to an improvement in environmental quality. Additionally, there is a two-way association between CO2 emissions and economic policy uncertainty, energy consumption, economic growth, and trade.