Does economic policy uncertainty and stock market development affect natural resources: Evidence from United States of America

Abstract

This study investigates the impact of economic policy uncertainty (EPU) and stock market development (SMD) on natural resources in the United States during the period between 1985 and 2021 by keeping the GDP and innovation as control variables. For empirical analysis, the autoregressive distributed lag model (ARDL) and Kernel Regularized Least Squares (KRLS) regression techniques were used to investigate the long- and short-run relationships. To check the robustness of results, this study uses a machine learning approach, i.e., Canonical Cointegrating Regression (CCR). The results of the ARDL bounds test approach suggest the presence of long-run relationships among the study variables, and these results were confirmed through KRLS and CCR. The long-run results indicate that economic policy uncertainty and SMD increase natural resource rent. Moreover, GDP and innovation also increase natural resource rent. However, a weak relationship exists between innovation and natural resource rent in the short run. Policymakers need to provide stable and encouraging economic policies to promote sustainable resource management, while stock markets need to facilitate long-term planning and responsible investment in natural resource industries.