Economic policy uncertainty and environmental degradation: the moderating role of political stability

The sustainability of the natural environment has become a serious policy agenda across the world. In this essence, the literature has discerned many macroeconomic factors that are causing environmental degradation. Among others, the economic policy uncertainty (EPU) is another factor that can uplift CO 2 emissions but was ignored in contemporary literature. Given that, the current analysis tends to uncover the role of EPU in CO 2 emissions and how political stability moderates this relationship. The empirical analysis was arranged on 20 years of financial data (2000–2019) of BRICS economies, and fully modified least square (FMOLS) and dynamic least square (DOLS) models were utilized to establish the empirical relationship. The empirical results reveal the significant positive impact of EPU while the negative impact of political stability on CO 2 emissions. Furthermore, the moderating impact of political stability was observed in the relationship of EPU-CO 2 emissions. In long run, the higher economic policy uncertainty intensifies the emissions of CO 2 which can be reduced by promoting political stability. The empirical analysis further advocates the dynamic impact of financial development, foreign investment, economic growth, and resource rent on pollution emissions. The moderating role of political stability implies that policy officials should certainly improve the stability of political conditions within a country. Moreover, they should ensure the overall consistency in economic policies. This study allures existing literature by exploring the moderating role of political stability in EPU and CO 2 emissions nexus.