How does natural resource price volatility affect economic performance? A threshold effect of economic policy uncertainty

The correlation between natural resource price volatility and economic performance has been broadly examined in recent decades. Policymakers and scholars have focus on the adverse implication of economic policy uncertainty (EPU) on economic performance. In the meantime, the sound institutions play a substantial role in mitigating the negative effect of economic policy uncertainty. Therefore, our study examines the threshold effect of economic policy uncertainty between natural resource price volatility and economic performance. The panel threshold models were used to capture the time-variant characteristic of natural resource price volatility, panel threshold models were utilized to conduct heterogeneous analyses on various groups of countries. The endogeneity effect was controlled through the panel least square estimators’ approach, which treated endogenous variables. Our empirical outcomes signify that economic policy uncertainty has a threshold effect between natural resource price volatility and economic performance. There is a positive association between natural resource price volatility and economic performance. Under the lower threshold value of economic policy uncertainty, the effect of natural resource price volatility on economic performance is higher than the above threshold value of the economic policy uncertainty regime. Natural resource price volatility heterogeneous impacts economic performance across developed and emerging economies under the high and lower threshold parameters. Emerging economies are more vulnerable to the threshold effect of economic policy uncertainty. Our empirical results possess important policy implications.