Sustainable economic development and geopolitics: The role of energy trilemma policies

Abstract

AbstractThis study reveals and supports the existence of a three‐way connection between sustainable economic development (SED), geopolitical risks (GPRI), and the energy trilemma (ET). The impacts of ET on SED, and GPRI were analyzed using a regime‐switching vector autoregressive model. Results reveal mostly a positive impact of ET on SED. Consequently, decision‐makers should design policies that promote ET to enhance economic growth and sustainability. However, decision‐makers should acknowledge that uncertainty regarding the impact of these policies on SED and the time lag until their effects are felt in economies varies widely across regimes. Geopolitical risk reveals a slightly positive short‐term reaction to ET under the slightly downward regime and a durable cyclical pattern in the sharply upward one. The cyclical impact of energy equity and security on GPRI is positive, while environmental sustainability reduces geopolitical risk. This fluctuating pattern of the response of GPRI to ET policies is compatible with prior research that shows these policies may either foster or mitigate geopolitical risk. Detailed knowledge of the differing impacts of ET‐related policies on geopolitical risk is fundamental for decision‐makers if they want the counteract some of their adverse effects and enhance geopolitical stability.