Spatial Dependence of the Impact of Economic Policy Uncertainty on Carbon Emissions

Abstract

In recent years, the escalating threat of global warming associated with climate change has heightened concerns about carbon emissions. This paper focuses on exploring the spatial dependence of the impact of Economic Policy Uncertainty (EPU) on carbon emissions. A theoretical framework is constructed using the IPAT equation and the STIRPAT model to investigate the relationship between EPU and carbon emissions. Following the Environmental Kuznets Curve (EKC) hypothesis, variables such as EPU, population size, economic development, industrial structure, and the square term of GDP are introduced into the model to explore the influencing factors of carbon emissions. Balanced panel data from 24 countries spanning from 2003 to 2020 are selected. This paper employs the Maximum Likelihood Ratio test to choose the Spatial Durbin model with fixed effects for analysis. The results of the Spatial Durbin model analysis are utilized to explore the direct, indirect, and feedback effects of EPU on carbon emissions in the 24 sampled countries. The findings indicate a strong spatial dependence in the direct impact of EPU on carbon emissions. In the short term, the indirect effect of EPU on carbon emissions outweighs the direct effect, prompting many countries to control carbon dioxide emissions at the expense of increased EPU.