The Asymmetric Impact of Geopolitical Risk on Renewable Energy Investment: A Cross-Country Analysis

Abstract

This study examines the asymmetric effect of geopolitical risk (GPR) on renewable energy investment (REI) for a panel of developed and emerging markets. Although current literature recognizes the role of political and economic stability on investment, the precise and possibly asymmetric roles of GPR, especially its directional changes, are still relatively unexamined in the renewable energy context. Applying panel data estimation and state-of-the-art econometric methods, such as non-linear autoregressive distributed lag (NARDL) models, we investigate how positive and negative shocks in GPR impact REI. The results provide evidence of a substantial asymmetric relationship, whereby negative shocks in GPR have a larger and more negative effect on REI compared to positive shocks. This asymmetry reinforces the risk-aversion of investors in the RE sector and demonstrates the role of stable geopolitical settings in facilitating sustainable energy transitions. The implications of our work are considerable for policymakers looking to attract REI and enhance energy security in an increasingly risky world.