Economic policy uncertainty and geopolitical risk: evidence from China and Southeast Asia

Abstract

This paper investigates the connectedness between China's economic policy uncertainty (EPU) and the geopolitical risk (GPR) of the countries in the Association of Southeast Asian Nations (ASEAN) using quantile time‐varying parameter vector autoregression. The empirical results indicate that China's EPU becomes a net risk transmitter at the median quantile, demonstrating that ASEAN countries' GPR is vulnerable to China's economic shocks. Furthermore, extreme events such as COVID‐19 amplify the connection between EPU and GPR, leading to a higher total connectedness index value. Moreover, the pairwise spillover effect analysis reflects that the risk launcher effect of China's EPU is longer and more prominent for Thailand and the Philippines than for Malaysia and Indonesia, which enriches the hypothesis. The contributions are as follows. This paper selects emerging China as the research object and first discusses its economic influence on neighbouring countries. In addition, fully analysing the heterogeneous spillover effects of EPU on the GPR of different countries makes our suggestions diversified and practical. Therefore, improving recognisable ability and institutional quality will promote ASEAN countries to mitigate their vulnerability to China's EPU shocks. Meanwhile, China's government should quickly respond to external uncertainties, prudently adjust economic policies, and avoid large swings of EPU volatility.

How geopolitical risk affect firms’ internationalization performance: Evidence from China

“…This conclusion is also valid in Southeast Asia. Wang et al [ 22 ] found that GPR in Southeast Asia seriously affect the local political landscape and have a negative impact on the cooperation benefits of RCEP. Besides commodity markets, GPR have a decisive impact on private sector trade, with strategic resource trade such as oil and gas being more sensitive to GPR [ 23 ].…”