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What determines volatility in natural resources? Evaluating the role of political risk index

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  • Khan, Arshad Ahmad
  • Luo, Jianchao
  • Safi, Adnan
  • Khan, Sufyan Ullah
  • Ali, Muhammad Abu Sufyan

Abstract

In the recent times, natural resources volatility (TNR) got the scholarly attention due to significant variations in demand and supply of natural resources. Beside demand and supply, there are other factors that influences TNR. Current study attempts to analyze the determinants of volatility in natural resources in the G-7 economies over the period from 1990 to 2020. This study analyzes the role of economic growth (GDP), renewable energy research and development (RERD) and political risk index (PRI) in volatility of natural resources. The pre-estimates reveal that all the study variables are cointegrated. While this employed the novel method of moment quantile regression to analyze the influence in three quantiles (Q0.25, Q0.50, and Q0.75). Empirical findings suggest that GDP significantly reduces TNR, while RERD and PRI significantly enhances TNR in the lower (Q0.25) and medium (Q0.50) quantiles. While no significant association is found in the upper (Q0.75) quantile. Additionally, the results demonstrate the existence of bidirectional causal association between the explanatory variables and TNR. This study provides policies regarding the improved economic growth, lowering political risk, and enhancement of RERD investment while targeting the minimization of volatility in natural resources.

Suggested Citation

  • Khan, Arshad Ahmad & Luo, Jianchao & Safi, Adnan & Khan, Sufyan Ullah & Ali, Muhammad Abu Sufyan, 2022. "What determines volatility in natural resources? Evaluating the role of political risk index," Resources Policy, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:jrpoli:v:75:y:2022:i:c:s030142072100547x
    DOI: 10.1016/j.resourpol.2021.102540
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