Economic policy uncertainty and green growth in IEA member countries: A role of environmental stringency policy

Abstract

AbstractAs environmental challenges continue to escalate, policymakers around the globe are prioritizing green growth (GG). This is complicated by the impact of two crucial factors, namely economic policy uncertainty (EPU) and environmental policy stringency (EPI), on the estimates for GG. Therefore, this study investigates the impact of these variables on GG while controlling trade and human development in International Energy Agency member countries from 1990 to 2020. After establishing the existence of a long‐run relationship through the Westerlund cointegration test, the Panel Mean Group autoregressive distributed lag, FMOLS, and DOLS are employed. The findings show that EPU has an inverse impact while EPI positively impacts GG in the long run. Additionally, in Brazil, China, Denmark, and Sweden, the error correction model indicates that EPU has a negative relationship, while EPI has a positive relationship with GG in the short run. Furthermore, a feedback causality was detected between GG, EPU, EPI, and Human Development Index. However, unidirectional causality has been captured running from trade to GG. This research also presents some new insights for policymakers.