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Asymmetric effects of policy uncertainty on real sector variables in emerging markets: evidence from Brazil, India, China and South Africa

Author

Listed:
  • Jonathan E. Ogbuabor
  • Victor A. Malaolu
  • Anthony Orji

Abstract

Purpose - This study investigated the asymmetric effects of changes in policy uncertainty on real sector variables in Brazil, China, India and South Africa. Design/methodology/approach - The study used the nonlinear autoregressive distributed lag (NARDL) modeling framework. Findings - The results showed that both in the long run and short run, rising uncertainty not only increases consumer prices significantly in these economies, but also impedes aggregate and sectoral output growths, and deters investment, employment and private consumption. Contrary to economic expectation, the results also showed that in the long run, declining uncertainty impedes aggregate and sectoral output growths in these economies, and significantly hinders employment in South Africa and Brazil. This suggests that in the long run, economic agents in these economies somewhat behave as if uncertainty is rising. The authors also found significant asymmetric effects in the response of real sector variables to uncertainty both in the long run and short run, which justifies the choice of NARDL framework for this study. Research limitations/implications - The sample is limited to Brazil, India, China and South Africa. While Brazil, India and China are three of the most prominent large emerging market economies, South Africa is the largest emerging market economy in Africa. Practical implications - To lessen the adverse effects of policy uncertainty observed in the results, there is need for sound institutions and policy regimes that can promote predictable policy responses in these economies so that policy neither serves as a source of uncertainty nor as a channel through which the effects of other shocks are transmitted. Originality/value - Apart from using the NARDL framework to capture the asymmetric effects of policy uncertainty, this study also accounted for the sectoral effects of uncertainty in emerging markets.

Suggested Citation

  • Jonathan E. Ogbuabor & Victor A. Malaolu & Anthony Orji, 2022. "Asymmetric effects of policy uncertainty on real sector variables in emerging markets: evidence from Brazil, India, China and South Africa," International Journal of Emerging Markets, Emerald Group Publishing Limited, vol. 19(8), pages 2070-2090, November.
  • Handle: RePEc:eme:ijoemp:ijoem-01-2022-0056
    DOI: 10.1108/IJOEM-01-2022-0056
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    More about this item

    Keywords

    Asymmetry; Policy uncertainty; Real sector variables; Nonlinear ARDL; Emerging markets; C22; D40; D80; E63; N90;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • N90 - Economic History - - Regional and Urban History - - - General, International, or Comparative

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