Adjei, Abigail Naa Korkor2024-09-182024-09-182021Adjei, Abigail Naa Korkor. (2021). Policy uncertainty, economic distance, and macroeconomic variables in developing economies [PhD thesis, University of the Witwatersrand, Johannesburg]. WireDSpace.https://hdl.handle.net/10539/40919https://hdl.handle.net/10539/40919Doctoral thesis submitted in fulfillment of the requirements for the award of the degree of Doctor of Philosophy The Graduate School of Business Administration University of the Witwatersrand, Johannesburg 2021Although economic policy uncertainty (EPU) is a less explored source of uncertainty that is related to economic policy, economic policy uncertainty in describing the state of an economy has assumed dominance in decision-making in countries and has remained relevant to investors, governments, and policy makers across the globe. This has become the standard because studies have proved that policy uncertainty has a significant effect on the overall economy and heightened EPU (especially during recessions) has the potential to harm economic activities. The literature review revealed evidence that EPU comoves with business cycles, that uncertainty influences the distance between economies, and that EPU spillover shocks from one economy to another have a significant impact on the recipient economy's economic activities. As yet, there has been scant systematic investigation of these possible interactions. The study of EPU is of major importance to emerging market economies (EMEs) because, although literature has proved the harmful effects of EPU on EMEs, the studies done is meager since majority of study on EPU have focused on developed countries. These implications of uncertainty on EMEs have made it very relevant to focus on the role uncertainty plays in EMEs. In order to make significant contribution to the role EPU plays in EMEs, this thesis focuses on addressing three main problems. To begin, the study examines whether EPU correlates with business cycles and, if so, whether EPU is the cause or effect of recessions across business cycles. The study makes an important contribution by finding answers to why business cycles fluctuate. This study deviates from traditional sources of fluctuations and focus on uncertainty as a potential cause or effect of business cycle fluctuations. We also propose new variables as measures ofbusiness cycles (GDP, CPI, SPX, import, export and broad money). The wavelet multiple correlation and wavelet multiple cross-correlation proposed by Fernandez-Macho (2012) is used to investigate the comovement between EPU ad business cycles. The analysis shows that business cycles commove with strong records of interdependence. The scale by scale analysis, on the other hand, has shown that the level of integration is strongest in the long-term. We further investigated the role EPU plays in the comovement of variables (gross domestic product (GDP), consumer price index (CPI), SPX (SPX), import, export and broad money) within each EME and discovered that positive correlation was generally recorded between EPU and CPI within each EME. Likewise, evidence of negative correlation for EPU was recorded between EPU and SPX across all EMEs. We also note that, although there is strong evidence of comovement between EPU and the macroeconomic variables, EPU has no lead/lag potential across all the time scales within the selected EMEs. To also clear all the inconsistencies of whether uncertainty is the cause or effect of fluctuations in the business cycle, the study adopts Diks and Panchenko (2005, 2006) non- parametric test. It was discovered that causality with respect to the economic indicators of business cycles is specific to each EMEs. We conclude that EPU is both a cause and effect of business cycles fluctuations in the selected EMEs except for India where business cycles cause EPU fluctuations. The second objective is to ascertain the relationship between EPU and distance in EMEs. The study focuses on the investigation of economic distance and geographical distance. This section makes two contributions to the study. First, we conduct a novel investigation on the relationship between economic distance and EPU. Second, we adopt a non-parametric geospatial analysis to investigate the spatial dependence between EMEs (with respect to their EPU measures). We first find an answer to the question, “can EPU influence economic distance in EMEs?”. The extent of similarities (or dissimilarities) of economic characteristics between units (or countries) is termed as economic. Despite evidence that uncertainty increases when the economic characteristics between countries are different, no study has investigated the relationship between economic distance and EPU although EPU has a greater significant impact on an economy than uncertainty in general. The dynamic linear regression method is adopted to investigate the relationship between EPU and economic distance. We discover that macroeconomic variables were largely statistically significant and have explanatory power to explain the economic distance between the EMEs as compared to the role EPU plays in explaining the economic distance between EMEs. We therefore find limited evidence of EPU’s effects on the economic distance between EMEs. We also discover that changes in the values of import, CPI and broad money in most EMEs are statistically relevant and significantly drive the changes in the values of economic distance between the selected EMEsen© 2021 University of the Witwatersrand, Johannesburg. All rights reserved. The copyright in this work vests in the University of the Witwatersrand, Johannesburg. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of University of the Witwatersrand, Johannesburg.Economic policy uncertaintyBusiness cyclesComovementEmerging market economiesEconomic distanceSpatial distanceSpatial autocorrelationShock spilloverUCTDDynamic connectednessSDG-8: Decent work and economic growthThesisUniversity of the Witwatersrand, Johannesburg