The causal nexus of geopolitical risks, consumer and producer confidence indexes: evidence from selected economies

Abstract

The effect and significant of risk in every real life situation is increasingly becoming a pertinent subject in almost every field, thus causing potential adverse effects on both the individual’s propensity to consume and invest. Also, the likelihood of the exposure of the developing countries to geopolitical risks amid experience of economic fragilities as indicated by security indexes has remained an important driver of the global market dynamics. On this note, this study is aimed at examining whether related risks in selected economies (Brazil, Indonesia, Republic of Korea, Russia, China, South Africa, Mexico, and Turkey) with geopolitical risks have a significant effect on consumer and producer confidence indexes by employing a monthly data between January 2004 and June 2018. A combination of two panel causality tecniques that examined both the panel and country-specific causality were employed to examine both the panel causal relationship and the country-specific causal relationship. The study found a causality relationship from geopolitical risk index to the consumer and producer confidence index for the overall panel. Also, the results in terms of the individual country showed that causality from the geopolitical risk index to the consumer confidence index is valid for Indonesia, South Africa, and Mexico. Meanwhile, the causality from geopolitical risk index to producer confidence index is valid for China, Indonesia, South Korea, and Mexico. The study presented useful financial and securtity policy measure for the examined panel of selected countries.