An Investigation of the spatial dependence between economic policy uncertainty and economic activities in emerging market economies

Abstract

Understanding the trends and impact of economic policy uncertainty (EPU) and its relationship with economic activities has become essential because of its significant negative impact on economic activities. In this era of trade and globalization, it’s evident that, emerging market economies (EMEs) are not independent of each other. Consequently, economic activities in one region may affect economic activities in other regions. We offer new empirical evidence by employing the concept of spatial analysis to examine the spatial cross-country linkages between EMEs to determine whether the dependence between EPU and economic activities is as a result of their global proximity. The study employs a non-parametric geospatial analysis and finds evidence of spatial autocorrelation across all the selected EMEs. The similarities and dissimilarities between the selected EMEs are significantly influenced by the distance between them. Also, heterogeneity was recorded when the six EMEs were divided into sub regions. The study further discovered that, policies (trade, monetary and fiscal) as well as spillover effects, are some of the factors that influence EPU spatial autocorrelation in EMEs. Findings on a wide range of macroeconomic variables and their relationship to EPU are accessible to policymakers and regulators.