IDEAS home Printed from https://ideas.repec.org/a/gam/jeners/v15y2022i4p1498-d751833.html
   My bibliography  Save this article

Geopolitical Risk as a Determinant of Renewable Energy Investments

Author

Listed:
  • Floros Flouros

    (Department of History, Politics and International Relations, School of Social Sciences, Arts and Humanities, Neapolis University Pafos, Paphos 8042, Cyprus)

  • Victoria Pistikou

    (Department of History, Politics and International Relations, School of Social Sciences, Arts and Humanities, Neapolis University Pafos, Paphos 8042, Cyprus
    Department of Economics, Democritus University of Thrace, University Campus, 69100 Komotini, Greece)

  • Vasilios Plakandaras

    (Department of Economics, Democritus University of Thrace, University Campus, 69100 Komotini, Greece)

Abstract

The advent of various initiatives around the globe in shaping an energy transition towards a “greener” energy production future sparked a research interest towards the determinants that will shape their success. In this paper, we depart from the relevant literature evaluating the potential effect of geopolitical tensions on renewable energy investments, building on an explicit quantitative approach that provides clear empirical evidence. In doing so, we compile a large panel of 171 economies and measure the effect of geopolitical risk on “green” investing as measured by popular geopolitical risk indices, while controlling for all major variables proposed by literature. Our flexible Autoregressive Distributed Lag model with heterogenous effects across economies suggests that geopolitical risk has a significantly measurable effect on green investments both in the short and the long run. In fact, our results suggest that proper model specification is robust across alternate risk assessments. Overall, our study has direct policy implications suggesting that renewable energy could be an important part of our energy mix only if we take into account its linkages with geopolitical tensions.

Suggested Citation

  • Floros Flouros & Victoria Pistikou & Vasilios Plakandaras, 2022. "Geopolitical Risk as a Determinant of Renewable Energy Investments," Energies, MDPI, vol. 15(4), pages 1-21, February.
    • Handle: RePEc:gam:jeners:v:15:y:2022:i:4:p:1498-:d:751833
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1996-1073/15/4/1498/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/1996-1073/15/4/1498/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alexander Chudik & Kamiar Mohaddes & M. Hashem Pesaran & Mehdi Raissi, 2016. "Long-Run Effects in Large Heterogeneous Panel Data Models with Cross-Sectionally Correlated Errors," Advances in Econometrics, in: Essays in Honor of man Ullah, volume 36, pages 85-135, Emerald Group Publishing Limited.
    2. Abid, Mehdi, 2016. "Impact of economic, financial, and institutional factors on CO2 emissions: Evidence from Sub-Saharan Africa economies," Utilities Policy, Elsevier, vol. 41(C), pages 85-94.
    3. Natalia Bailey & George Kapetanios & M. Hashem Pesaran, 2016. "Exponent of Cross‐Sectional Dependence: Estimation and Inference," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(6), pages 929-960, September.
    4. Natalia Bailey & George Kapetanios & M. Hashem Pesaran, 2019. "Exponent of Cross-sectional Dependence for Residuals," Sankhya B: The Indian Journal of Statistics, Springer;Indian Statistical Institute, vol. 81(1), pages 46-102, September.
    5. Antonakakis, Nikolaos & Gupta, Rangan & Kollias, Christos & Papadamou, Stephanos, 2017. "Geopolitical risks and the oil-stock nexus over 1899–2016," Finance Research Letters, Elsevier, vol. 23(C), pages 165-173.
    6. Sweidan, Osama D., 2021. "Is the geopolitical risk an incentive or obstacle to renewable energy deployment? Evidence from a panel analysis," Renewable Energy, Elsevier, vol. 178(C), pages 377-384.
    7. Melike E Bildirici, 2021. "Terrorism, environmental pollution, foreign direct investment (FDI), energy consumption, and economic growth: Evidences from China, India, Israel, and Turkey," Energy & Environment, , vol. 32(1), pages 75-95, February.
    8. Li, Raymond & Leung, Guy C.K., 2012. "Coal consumption and economic growth in China," Energy Policy, Elsevier, vol. 40(C), pages 438-443.
    9. Dario Caldara & Matteo Iacoviello, 2022. "Measuring Geopolitical Risk," American Economic Review, American Economic Association, vol. 112(4), pages 1194-1225, April.
    10. Bélaïd, Fateh & Youssef, Meriem, 2017. "Environmental degradation, renewable and non-renewable electricity consumption, and economic growth: Assessing the evidence from Algeria," Energy Policy, Elsevier, vol. 102(C), pages 277-287.
    11. O'Sullivan, Meghan & Overland, Indra & Sandalow, David, 2017. "The Geopolitics of Renewable Energy," Working Paper Series rwp17-027, Harvard University, John F. Kennedy School of Government.
    12. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    13. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    14. Chudik, Alexander & Pesaran, M. Hashem, 2015. "Common correlated effects estimation of heterogeneous dynamic panel data models with weakly exogenous regressors," Journal of Econometrics, Elsevier, vol. 188(2), pages 393-420.
    15. Ehsan Rasoulinezhad & Farhad Taghizadeh-Hesary & Jinsok Sung & Nisit Panthamit, 2020. "Geopolitical Risk and Energy Transition in Russia: Evidence from ARDL Bounds Testing Method," Sustainability, MDPI, vol. 12(7), pages 1-17, March.
    16. Qing Wang & Kefeng Xiao & Zhou Lu, 2020. "Does Economic Policy Uncertainty Affect CO 2 Emissions? Empirical Evidence from the United States," Sustainability, MDPI, vol. 12(21), pages 1-11, November.
    17. Jaforullah, Mohammad & King, Alan, 2015. "Does the use of renewable energy sources mitigate CO2 emissions? A reassessment of the US evidence," Energy Economics, Elsevier, vol. 49(C), pages 711-717.
    18. Rangan Gupta & Giray Gozgor & Huseyin Kaya & Ender Demir, 2019. "Effects of geopolitical risks on trade flows: evidence from the gravity model," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(4), pages 515-530, December.
    19. Bourcet, Clémence, 2020. "Empirical determinants of renewable energy deployment: A systematic literature review," Energy Economics, Elsevier, vol. 85(C).
    20. Joakim Westerlund & Yana Petrova & Milda Norkute, 2019. "CCE in fixed‐T panels," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 34(5), pages 746-761, August.
    21. Mehmet Huseyin Bilgin & Giray Gozgor & Gokhan Karabulut, 2020. "How Do Geopolitical Risks Affect Government Investment? An Empirical Investigation," Defence and Peace Economics, Taylor & Francis Journals, vol. 31(5), pages 550-564, July.
    22. Yao, Lixia & Chang, Youngho, 2014. "Energy security in China: A quantitative analysis and policy implications," Energy Policy, Elsevier, vol. 67(C), pages 595-604.
    23. Andrew K. Jorgenson & Brett Clark & Jeffrey Kentor, 2010. "Militarization and the Environment: A Panel Study of Carbon Dioxide Emissions and the Ecological Footprints of Nations, 1970-2000," Global Environmental Politics, MIT Press, vol. 10(1), pages 7-29, February.
    24. Nicholas Apergis & Sofia Eleftheriou, 2015. "Renewable Energy Consumption, Political And Institutional Factors: Evidence From A Group Of European, Asian And Latin American Countries," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 60(01), pages 1-19.
    25. Shafiullah, Muhammad & Miah, Mohammad Dulal & Alam, Md Samsul & Atif, Muhammad, 2021. "Does economic policy uncertainty affect renewable energy consumption?," Renewable Energy, Elsevier, vol. 179(C), pages 1500-1521.
    26. Asma Khatoon & Piyush Verma & Jo Southernwood & Beth Massey & Peter Corcoran, 2019. "Blockchain in Energy Efficiency: Potential Applications and Benefits," Energies, MDPI, vol. 12(17), pages 1-14, August.
    27. Le, Thai-Ha & Nguyen, Canh Phuc, 2019. "Is energy security a driver for economic growth? Evidence from a global sample," Energy Policy, Elsevier, vol. 129(C), pages 436-451.
    28. Höfer, Tim & Madlener, Reinhard, 2020. "A participatory stakeholder process for evaluating sustainable energy transition scenarios," Energy Policy, Elsevier, vol. 139(C).
    29. Vakulchuk, Roman & Overland, Indra & Scholten, Daniel, 2020. "Renewable energy and geopolitics: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 122(C).
    30. Gasparatos, Alexandros & Gadda, Tatiana, 2009. "Environmental support, energy security and economic growth in Japan," Energy Policy, Elsevier, vol. 37(10), pages 4038-4048, October.
    31. Isaac Appiah-Otoo, 2021. "Impact of Economic Policy Uncertainty on Renewable Energy Growth," Energy RESEARCH LETTERS, Asia-Pacific Applied Economics Association, vol. 2(1), pages 1-5.
    32. Sergio Luis Náñez Alonso & Javier Jorge-Vázquez & Miguel Ángel Echarte Fernández & Ricardo Francisco Reier Forradellas, 2021. "Cryptocurrency Mining from an Economic and Environmental Perspective. Analysis of the Most and Least Sustainable Countries," Energies, MDPI, vol. 14(14), pages 1-22, July.
    33. Chaker Aloui & Hela Ben Hamida, 2021. "Oil-stock Nexus in an Oil-rich Country: Does Geopolitical Risk Matter in Terms of Investment Horizons?," Defence and Peace Economics, Taylor & Francis Journals, vol. 32(4), pages 468-488, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Taghizadeh-Hesary, Farhad & Phoumin, Han & Rasoulinezhad, Ehsan, 2023. "Assessment of role of green bond in renewable energy resource development in Japan," Resources Policy, Elsevier, vol. 80(C).
    2. Li, Yiying & Yan, Cheng & Ren, Xiaohang, 2023. "Do uncertainties affect clean energy markets? Comparisons from a multi-frequency and multi-quantile framework," Energy Economics, Elsevier, vol. 121(C).
    3. Khan, Khalid & Su, Chi Wei & Khurshid, Adnan & Qin, Meng, 2023. "Does energy security improve renewable energy? A geopolitical perspective," Energy, Elsevier, vol. 282(C).
    4. Zhang, Shaohe & Shinwari, Riazullah & Zhao, Shikuan & Dagestani, Abd Alwahed, 2023. "Energy transition, geopolitical risk, and natural resources extraction: A novel perspective of energy transition and resources extraction," Resources Policy, Elsevier, vol. 83(C).
    5. Zhang, Yi & Zhang, Leilei & Yu, Hang & Tu, Yanhong, 2023. "Does Geopolitical risk drive natural resources extraction globally? A Case of Global," Resources Policy, Elsevier, vol. 82(C).
    6. Lorente, Daniel Balsalobre & Mohammed, Kamel Si & Cifuentes-Faura, Javier & Shahzad, Umer, 2023. "Dynamic connectedness among climate change index, green financial assets and renewable energy markets: Novel evidence from sustainable development perspective," Renewable Energy, Elsevier, vol. 204(C), pages 94-105.
    7. Li, Zhuolun, 2023. "Do geopolitical risk, green finance, and the rule of law affect the sustainable environment in China? Findings from the BARDL approach," Resources Policy, Elsevier, vol. 81(C).
    8. Khan, Khalid & Khurshid, Adnan & Cifuentes-Faura, Javier, 2023. "Energy security analysis in a geopolitically volatile world: A causal study," Resources Policy, Elsevier, vol. 83(C).
    9. Casper Boongaling Agaton, 2022. "Will a Geopolitical Conflict Accelerate Energy Transition in Oil-Importing Countries? A Case Study of the Philippines from a Real Options Perspective," Resources, MDPI, vol. 11(6), pages 1-17, June.
    10. Zouhaier Dhifaoui & Kaies Ncibi & Faicel Gasmi & Abulmajeed Abdallah Alqarni, 2023. "The Nexus between Climate Change and Geopolitical Risk Index in Saudi Arabia Based on the Fourier-Domain Transfer Entropy Spectrum Method," Sustainability, MDPI, vol. 15(18), pages 1-22, September.
    11. Aleksandra Jezierska-Thöle & Marta Gwiaździńska-Goraj & Małgorzata Dudzińska, 2022. "Environmental, Social, and Economic Aspects of the Green Economy in Polish Rural Areas—A Spatial Analysis," Energies, MDPI, vol. 15(9), pages 1-21, May.
    12. Periklis Gogas & Theophilos Papadimitriou, 2022. "Emerging Trends in Energy Economics," Energies, MDPI, vol. 15(14), pages 1-2, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fen Li & Zhehao Huang & Junhao Zhong & Khaldoon Albitar, 2020. "Do Tense Geopolitical Factors Drive Crude Oil Prices?," Energies, MDPI, vol. 13(16), pages 1-20, August.
    2. Riti, Joshua Sunday & Shu, Yang & Riti, Miriam-Kamah J., 2022. "Geopolitical risk and environmental degradation in BRICS: Aggregation bias and policy inference," Energy Policy, Elsevier, vol. 166(C).
    3. Sweidan, Osama D., 2021. "Is the geopolitical risk an incentive or obstacle to renewable energy deployment? Evidence from a panel analysis," Renewable Energy, Elsevier, vol. 178(C), pages 377-384.
    4. Sweidan, Osama D. & Elbargathi, Khadiga, 2023. "Economic diversification in Saudi Arabia: Comparing the impact of oil prices, geopolitical risk, and government expenditures," International Economics, Elsevier, vol. 175(C), pages 13-24.
    5. Mohd Ziaur Rehman & Shabeer Khan & Uzair Abdullah Khan & Wadi B. Alonazi & Abul Ala Noman, 2023. "How Do Global Uncertainties Spillovers Affect Leading Renewable Energy Indices? Evidence from the Network Connectedness Approach," Sustainability, MDPI, vol. 15(18), pages 1-15, September.
    6. Osama D. Sweidan, 2023. "The Effect of Geopolitical Risk on Income Inequality: Evidence from a Panel Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 167(1), pages 47-66, June.
    7. Osama D. Sweidan, 2023. "Geopolitical Risk and Income Inequality: Evidence from the US Economy," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 169(1), pages 575-597, September.
    8. Tang, Yumei & Chen, Xihui Haviour & Sarker, Provash Kumer & Baroudi, Sarra, 2023. "Asymmetric effects of geopolitical risks and uncertainties on green bond markets," Technological Forecasting and Social Change, Elsevier, vol. 189(C).
    9. Pan, Lijun & Wang, Yangjie & Sun, Xiaofei & Sadiq, Muhammad & Dagestani, Abd Alwahed, 2023. "Natural resources: A determining factor of geopolitical risk in Russia? Revisiting conflict-based perspective," Resources Policy, Elsevier, vol. 85(PA).
    10. Borozan, Dj, 2022. "Asymmetric effects of policy uncertainty on renewable energy consumption in G7 countries," Renewable Energy, Elsevier, vol. 189(C), pages 412-420.
    11. Zouhaier Dhifaoui & Kaies Ncibi & Faicel Gasmi & Abulmajeed Abdallah Alqarni, 2023. "The Nexus between Climate Change and Geopolitical Risk Index in Saudi Arabia Based on the Fourier-Domain Transfer Entropy Spectrum Method," Sustainability, MDPI, vol. 15(18), pages 1-22, September.
    12. Muhammad Khalid Anser & Qasim Raza Syed & Hooi Hooi Lean & Andrew Adewale Alola & Munir Ahmad, 2021. "Do Economic Policy Uncertainty and Geopolitical Risk Lead to Environmental Degradation? Evidence from Emerging Economies," Sustainability, MDPI, vol. 13(11), pages 1-15, May.
    13. Wang, Kai-Hua & Wen, Cui-Ping & Liu, Hong-Wen & Liu, Lu, 2023. "Promotion or hindrance? Exploring the bidirectional causality between geopolitical risk and green bonds from an energy perspective," Resources Policy, Elsevier, vol. 85(PB).
    14. Nguyen, Trang Thi Thuy & Pham, Binh Thai & Sala, Hector, 2022. "Being an emerging economy: To what extent do geopolitical risks hamper technology and FDI inflows?," Economic Analysis and Policy, Elsevier, vol. 74(C), pages 728-746.
    15. Su, Chi-Wei & Khan, Khalid & Umar, Muhammad & Chang, Tsangyao, 2022. "Renewable energy in prism of technological innovation and economic uncertainty," Renewable Energy, Elsevier, vol. 189(C), pages 467-478.
    16. Tullio Gregori & Marco Giansoldati, 2023. "Do current and capital account liberalizations affect economic growth in the long run?," Empirical Economics, Springer, vol. 65(1), pages 247-273, July.
    17. Wael Hemrit, 2022. "Does insurance demand react to economic policy uncertainty and geopolitical risk? Evidence from Saudi Arabia," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(2), pages 460-492, April.
    18. Salisu, Afees A. & Shaik, Muneer, 2022. "Islamic Stock indices and COVID-19 pandemic," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 282-293.
    19. Valizadeh, Pourya & Fischer, Bart L. & Bryant, Henry L., 2022. "Investigating the Differential Effects of the Economy on SNAP Participation: A Factor Model Approach," 2022 Annual Meeting, July 31-August 2, Anaheim, California 322367, Agricultural and Applied Economics Association.
    20. Ivanovski, Kris & Hailemariam, Abebe, 2022. "Time-varying geopolitical risk and oil prices," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 206-221.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jeners:v:15:y:2022:i:4:p:1498-:d:751833. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.