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

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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.

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Fig. 1

Source: Caldara et al. (2017), author calculations

Fig. 2

Source: Caldara et al. (2017), author calculations

Fig. 3

Source: World Bank databank, author calculations

Fig. 4

Source: Author calculation

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The authors declare that no funds, grants, or other support were received during the preparation of this manuscript.

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Authors and Affiliations

  1. Department of Business Administration, Social Sciences University of Ankara, Hükümet Meydanı No: 2, 06030, Altındağ, Ankara, Turkey

    Ecenur Ugurlu-Yildirim & Beyza Mina Ordu-Akkaya

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  1. Ecenur Ugurlu-Yildirim
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  2. Beyza Mina Ordu-Akkaya
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Contributions

All authors contributed to the study conception and design. Material preparation, data collection and analysis were performed by EU-Y and BMO-A. All authors read and approved the final manuscript.

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Correspondence to Ecenur Ugurlu-Yildirim.

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Appendix

Appendix

See Tables 9, 10 and 11.

Table 9 ARDL estimation results (dependent variable: FDIOUTFLOW)
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Table 10 ARDL estimation results (dependent variable: STOCK)
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Table 11 ARDL estimation results (dependent variable: CONSG)
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Ugurlu-Yildirim, E., Ordu-Akkaya, B.M. Does the impact of geopolitical risk reduce with the financial structure of an economy? A perspective from market vs. bank-based emerging economies. Eurasian Econ Rev 12, 681–703 (2022). https://doi.org/10.1007/s40822-022-00219-3

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