Stimulation or Inhibition? Exploring the Role of Economic Policy Uncertainty in Technological Progress

Pai-Chin Huang, Chia-Ling Yao, Cheng-To Lin and Cristi Spulbar

Emerging Markets Finance and Trade, 2025, vol. 61, issue 13, 3973-3988

Abstract: Exploring the pivotal significance of economic policy uncertainty (EPU) holds paramount importance in promoting technological progress in China. In this study, we utilize a wavelet-transform quantile-on-quantile regression (QQR) approach to analyze the intricate influences from EPU to technological innovation (TI), under the control of government expenditure on science and technology (GE). Quantitative result reveals that, in the short term, a low level of EPU functions as a catalyst for technological progress, whereas moderate-to-high levels of EPU hinder TI. This trend underscores that although a certain degree of economic policy uncertainty can spur technological advancements, excessive uncertainty would become an obstacle. However, over the medium to long term, it becomes clear that the positive impact of EPU on TI gains greater significance, as relevant entities are more capable of adapting to their specific circumstances and market demands, ultimately achieving greater technological progress than in the short term. In the midst of growing economic policy turbulence, we will put forth insightful proposals to navigate the challenges posed by uncertain economic policies while simultaneously promoting innovation and technological growth in China.

Date: 2025
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DOI: 10.1080/1540496X.2025.2501763

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