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Exploring the dynamic interaction between geopolitical risks and lithium prices: A time-varying analysis

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  • Zhang, Xiaojing
  • Chang, Hsu-Ling
  • Su, Chi-Wei
  • Qin, Meng
  • Umar, Muhammad

Abstract

Within the process of energy transition, lithium has emerged as a critical strategic resource, experiencing an unprecedented price surge. This paper aims to investigate the interplay between the international geopolitical landscape and the lithium market, specifically examining the potential politicisation of lithium. We utilize the bootstrap sub-sample method to evaluate the correlation between geopolitical risks (GPR) and lithium price (LP). The results demonstrate a two-way causality extends across diverse sub-samples, highlighting the intricate link between GPR and LP. Furthermore, we observe a dynamic interaction between GPR and LP, characterized by time-varying directional influences. At the beginning, a negative correlation between GPR and LP is identified, challenging the Intertemporal Capital Asset Pricing Model's predictions of their concurrent movement. Notably, in 2022, a positive influence from GPR on LP emerges, signaling an emerging political dimension within lithium markets. In the context of energy transition and geopolitical uncertainty, our findings emphasize the importance for policymakers and the public to consider diverse technological alternatives to reduce lithium dependency.

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  • Zhang, Xiaojing & Chang, Hsu-Ling & Su, Chi-Wei & Qin, Meng & Umar, Muhammad, 2024. "Exploring the dynamic interaction between geopolitical risks and lithium prices: A time-varying analysis," Resources Policy, Elsevier, vol. 90(C).
    • Handle: RePEc:eee:jrpoli:v:90:y:2024:i:c:s0301420724002071
    DOI: 10.1016/j.resourpol.2024.104840
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    Cited by:

    1. Jamel Saadaoui & Russell Smyth & Joaquin Vespignani, 2024. "Ensuring the security of the clean energy transition: Examining the impact of geopolitical risk on the price of critical minerals," Monash Economics Working Papers 2024-19, Monash University, Department of Economics.
    2. Jamel Saadaoui & Russell Smyth & Joaquin Vespignani, 2024. "Ensuring the security of the clean energy transition: Examining the impact of geopolitical risk on the price of critical minerals," Monash Economics Working Papers 2024-19, Monash University, Department of Economics.

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    More about this item

    Keywords

    Lithium prices; Geopolitical risks; Energy transition; Granger causal relation;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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