Geopolitical risk and bank stability Phan, Dinh Hoang Bach; Tran, Vuong Thao; Iyke, Bernard Njindan
Finance research letters,
05/2022, Volume:
46
Journal Article
Peer reviewed
•This paper investigates how geopolitical risk affects bank stability.•We show that an increase in geopolitical risk is associated with a decline in bank stability.•The effect is less pronounced for ...the groups of large banks, well-capitalized banks, and banks with lower deposit-to-asset ratios.•The results are consistent in several robustness tests.
In this paper, we present evidence supporting our hypothesis that geopolitical risk hurts bank stability. Using annual bank stability, bank-specific, macroeconomic, and geopolitical risk datasets, we show that an increase in geopolitical risk is associated with a decline in bank stability. This finding is robust to different geopolitical risk and bank stability measures, removing the period of extreme financial events, excluding banks with less than ten years of data, potential endogeneity issues, and controlling for other risk factors. Our results also emphasize the role of holding capital and bank size in attenuating the destabilizing effect of geopolitical risk.
PurposeThe study's objective is to measure the response of the food prices to the aggregate and disaggregate geopolitical risk events, Russia's geopolitical risks and global energy prices in the ...context of two European regions, i.e. Eastern and Western Europe covering the monthly data from January 2001 to March 2022.Design/methodology/approachThe authors apply a novel and sophisticated econometric method, the cross-quantilogram (CQ) approach, to analyse the authors’ monthly data properties. This method detects the causal relationship between the variables under the bi-variate modelling approach. More importantly, the CQ procedure divulges the bearish and bullish states of the causal association between the variables under short, medium and long memories.FindingsThe authors find that aggregate measures of geopolitical risk reduce food prices in the short term in the Eastern Europe but increases food prices in the Western Europe. Besides, the decomposed measures of geopolitical risk “threats” and “acts” have heterogeneous effects on the food prices. More importantly, Russia's geopolitical risk events and global energy prices enhance the food inflation under long memory.Research limitations/implicationsThe authors provide diverse policy implications for Eastern and Western Europe based on the authors’ findings. First, the European policymakers should take concrete and joint policy measures to tackle the detrimental effects of geopolitical risks to bring stability to the food markets. Second, this region should emphasize utilizing their unused agricultural lands to grow more crops to avoid external dependence on food. Third, the European Union and its partners should begin global initiatives to help smallholder farmers because of their contribution to the resilience of disadvantaged, predominantly rural communities. Fourth, geopolitically affected European countries like Ukraine should deal with a crippled supply chain to safeguard their production infrastructure. Fifth, fuel (oil) scarcity in the European region due to the Russia-Ukraine war should be mitigated by searching for alternative sources (countries) for smooth food transportation for trade. Finally, as Europe and its Allies impose new sanctions in response to the Russia-Ukraine war, it can have immediate and long-run disastrous consequences on the European and the global total food systems. In this case, all European blocks mandate cultivating stratagems to safeguard food security and evade a long-run cataclysm with multitudinous geopolitical magnitudes for European countries and the rest of the world.Originality/valueThis is the maiden study that considers the aggregated and disaggregated measures of the geopolitical risk events, Russia's geopolitical risks and global energy prices and delves into these dynamics' effects on food prices. Notably, linking the context of the Russia-Ukraine war is a significant value addition to the existing piece of food literature.
The global financial downturn induced by COVID-19 has hampered the effectiveness of renewable energy developments, impeding the accomplishment of the United Nations' sustainable development targets. ...Green finance is a significant means for promoting renewable energy investment and achieving sustainability. Using data from 2012 to 2021 from fifty energy firms in China, this study highlights the starring part of geopolitical risk, green finance, and environmental tax in investment in renewable energy (IRE) sources. It also investigated how IRE impacts the studied firms' electricity output. The data were analyzed through quantile regression and dynamic analysis techniques. The results indicated that green financing and environmental tax significantly impact IRE sources with 0.137*** and 0.428*** beta values, respectively. However, geopolitical risk significantly impedes such projects. Similarly, IRE significantly increases the electricity output of Chinese energy firms. This research is unique in the sense of studying green financing, geopolitical risk, and environmental tax nexus in renewable energy investments leading to electricity generation, which shows a pivotal role in achieving environmental sustainability and provides valuable insights to environmentalists and policymakers to design and implement ecological strategies leading to achieving sustainable development goals.
•Green finance and environmental tax are positive predictors of Chinese firms' investment in renewable energy.•Geopolitical risk has a significant negative impact on investment in renewable energy.•Investment in renewable energy strengthens organizational electricity output capacity.
•We propose a new index to measure the intensity of the Russia–Ukraine conflict.•We examine to what extent and through which channels does the Russia–Ukraine conflict affect the volatility of ...commodity markets.•The Russia–Ukraine conflict influences commodity markets through both economic and financial channels.•Our findings are conducive to understanding the dynamic impact and transmission mechanism of the Russia–Ukraine conflict on commodity risk.
We construct a new index to measure the intensity of the Russia-Ukraine conflict and use it to examine to what extent and through which channels does this conflict affect the volatility risk of commodity markets. Our results suggest that the intensification of the Russia-Ukraine conflict significantly increases the volatility of agricultural, metal, and energy markets. The conflict affects these markets through both economic and financial channels. Regarding economic channels, after the escalation of conflict, the higher the global market share of a commodity exported by Russia, the higher the volatility risk for that commodity. Regarding financial channels, investor panic and the monetary policy of the major central banks amplify the impact of the Russia-Ukraine conflict. Commodity markets are more volatile when the Russia-Ukraine conflict escalates during periods when Russia's foreign exchange reserves are high.
The turbulent world situation is an urgent crisis in energy trade and may exacerbate regional energy tensions. This paper measures the links between geopolitical risks (GPR), economic policy ...uncertainties (EPU) and energy import (EI) from 2005:M3 to 2023:M3. We use the Wavelet-Based quantile-on-quantile (QQ) approach based on China's import statistics for the first time. The results show that both GPR and EPU are important factors affecting EI. We confirm the negative impact of GPR and EPU on EI in the short term, while EI tends to recover in the long run. The result is consistent with the theoretical mechanism that reflects the interrelationship between external uncertainties and EI. As a result, the government should advance diversified energy access options, timely adjustment of energy policies to respond to crises, increase energy reserves and actively undertake energy innovation to reduce external energy dependence.
•We measures the links between external uncertainties and energy imports.•This paper uses the Wavelet-Based quantile-on-quantile approach.•External uncertainties are important factors affecting energy import.•Energy import tends to recover in the long run.
The rapid advancement of artificial intelligence (AI) in the 21st century is driving profound societal changes and playing a crucial role in optimizing energy systems to achieve carbon neutrality. ...Most G20 nations have developed national AI strategies and are advancing AI applications in energy, manufacturing, and agriculture sectors to meet this goal. However, disparities exist among these nations, creating an "AI divide" that needs to be addressed for regulatory consistency and fair distribution of AI benefits. Here, we look at the linear effects of AI and the Paris Agreement (AI), as well as their potential interaction on carbon neutrality. We also investigate whether geopolitical risk (GPR) can hinder or enhance efforts to attain carbon neutrality through energy transition (ET). To measure carbon neutrality of G20 countries, we employed a robust parametric Malmquist index combined with the fixed-effect panel stochastic frontier model to account for heterogeneity. Results indicate that from 1990 to 2022, carbon neutrality has improved primarily due to technological advancements. Developed G20 countries led in technological progress, while developing countries showed modest gains in carbon efficiency. Using the Driscoll-Kraay robust standard error method, we found that AI has a positive but insignificant linear effect on carbon neutrality. However, the interaction between PA and AI was positive and statistically significant, suggesting that PA augments AI's potential in accelerating carbon neutrality. Energy transition accelerates carbon neutrality in both developed and developing G20 countries. However, the role of energy transition in achieving carbon neutrality becomes negative when the interaction term between energy transition and geopolitical risk (ET × GRP) is incorporated. Regarding control variables, green innovation positively impacts carbon neutrality, whereas financial development has an insignificant effect. Industrial structure and foreign direct investment both negatively affect carbon neutrality, thereby supporting the pollution haven hypothesis. It is recommended that strategies to bridge the "AI divide" and uphold geopolitical stability are crucial to achieve carbon neutrality.
•Parametric Malmquist index was used to study carbon neutrality in G20 nations.•Paris agreement's moderating effect on carbon neutrality through AI was studied.•Assessed if geopolitical risk could affect carbon neutrality via energy transition.•Paris agreement improves carbon neutrality through AI.•Geopolitical risk impedes energy transition's role in achieving carbon neutrality.
•This study examines the interrelation among stock markets, oil markets and geopolitical risk.•Uses historical data and a newly developed geopolitical risk index.•Results suggest that geopolitical ...risk triggers a negative effect mainly on oil returns and volatility.•The negative effect is smaller on the covariance among the aforementioned markets.
Markets are invariably influenced and affected not only by the usual array of economic and financial factors, but also by uncertainty inducing shocks. Using monthly stock and oil data that spans over a century, this study takes a long historical perspective on whether the time-varying stock–oil covariance, their returns and their variances are affected by geopolitical risk, as encapsulated and quantified by a recently developed index (Caldara and Iacoviello, 2016). The results reveal that geopolitical risk triggers a negative effect, mainly on oil returns and volatility, and to a smaller degree on the covariance between the two markets.
As the Russo–Ukrainian conflict obstructs the vast wheat production of Ukraine, we investigate the relationship over crises between geopolitical risk and prices of essential food commodities. We use ...multiresolution analysis to identify patterns concealed by high noise levels inherent with commodity prices during crises. Our sample includes such important periods as Brexit, COVID-19, and the current Russo–Ukrainian conflict. Results evidence a one-way causal relationship, with geopolitical factors significantly affecting food prices. Scholars interested in global development, as well as policy makers and international aid organizations will be especially interested in understanding the sensitivity of food prices to geopolitical risk.
•Geopolitical risk and prices of essential food commodities.•Multiresolution analysis to identify patterns.•One-way causality: geopolitical factors significantly affecting food prices.
Green finance and investment in renewable energy (RE) sources are two of the most important climate change strategies that might have a long-term impact. Micro- and macro-level data from 2010 to 2021 ...in China used to gain a new analysis of the impact of green finance, inflationary pressures, and geopolitical risk in improving sustainability. Regression estimation methods were used to tackle this while considering direct and indirect associations between the parameter estimates. According to recent research, environmental taxes, such as those on carbon emissions, have been shown to have a large and favorable effect on profitability in RES. The volatility of oil prices and geopolitical risk, on the other hand, has a negative influence on the investment pattern for sustainable energy sources in China. The research also shows that green rules have a significant role in reducing the impact of green finance on RE production. Green companies in China should be pushed so that RE investments are regarded as a long-term strategy, according to the conclusions of the research. The study's theoretically, and empirically conclusions have supplied policymakers and environmentalists with useful information for developing and implementing environmental initiatives with long-term financial benefits.
•This study focused solely on the economic and environmental consequences of renewable energy sector in China.•Green rules have a tempering effect while enhancing the association between green finance and renewable energy expenditure.•Renewable energy greatly benefits from green funding.
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