Does the impact of geopolitical risk reduce with the financial structure of an economy? A perspective from market vs. bank-based emerging economies

Ecenur Ugurlu-Yildirim () and Beyza Mina Ordu-Akkaya
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Ecenur Ugurlu-Yildirim: Social Sciences University of Ankara
Beyza Mina Ordu-Akkaya: Social Sciences University of Ankara

Eurasian Economic Review, 2022, vol. 12, issue 4, No 4, 703 pages

Abstract: Abstract In this paper, we investigate if negative effect of geopolitical risk on economic growth reduces with the financial structure of emerging economies. Although previous studies do not find market-based structure to boost economic growth, we cast a light upon why countries still opt for shifting to that structure. We mainly utilize panel autoregressive distributed lag (ARDL) for the period between 1985 and 2021 and employ country-based geopolitical risk (GPR) indices for 15 emerging markets. Findings depict that market-based structure reduces negative impact of geopolitical risk on economic growth, which might be attributed to increasing transparency and hence investors feeling less hesitant in investing market-based economies. On the other hand, we also show that market-based system reduces the adverse effects of GPR on consumption, whereas bank-based system has the same effect on investment growth in the long-run. Therefore, our paper asserts that the financial system is not irrelevant in terms of growth perspective, if the geopolitical risk is a key factor for an emerging country.

Keywords: Geopolitical risk; Emerging markets; Financial structure; Economic growth; Panel ARDL (search for similar items in EconPapers)
JEL-codes: G10 G20 O10 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s40822-022-00219-3

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