Global Health Crises and Geopolitical Tensions as Drivers of Economic Policy Uncertainty: Evidence from Asia

Abstract

The study aimed to examine the impact of global health crises, represented by the COVID-19 pandemic, and geopolitical risks on economic policy uncertainty in four major Asian economies, namely China, India, Japan, and Korea, over the period from September 2019 to March 2021. To do so, it employed the PMG estimator within a panel ARDL framework and relied on panel time-series data as well as cointegration tests to investigate both the short-run and long-run relationships among the variables.

The study found a positive long-run relationship between both COVID-19 and geopolitical risk on the one hand, and economic policy uncertainty on the other. This indicates that increases in infection cases and intensifying geopolitical tensions lead to higher levels of economic policy uncertainty. These findings support the view that Asian economies experienced a dual shock during the period under review, consisting of a global health shock and geopolitical tensions, both of which contributed to increasing economic policy uncertainty.