How does climate change asymmetrically affect economic policy uncertainty in the GCC countries: A multivariate quantile-on-quantile analysis

Abstract

This study investigates the critical relationship between climate change and EPU in GCC countries from 1980:M1 to 2023:M12, focusing specifically on how temperature changes influence EPU in these economies. The research distinguishes itself through its novel application of quantile-based methodologies, offering insights across different temporal periods and distribution quantiles. The findings reveal that GCC countries experience both benefits and vulnerabilities related to policy stability as temperatures change. Through M-QQR analysis, we find that Kuwait, Saudi Arabia, and the UAE maintain policy stability under lower temperature scenarios, while Qatar and Oman show diminished advantages. Crucially, all GCC countries exhibit increased policy uncertainty during extreme temperature events, highlighting the region's vulnerability to climate extremes. Our W-QR analysis adds a temporal dimension, showing that Saudi Arabia and Kuwait face immediate climate change impacts on policy uncertainty, reflecting their oil market sensitivities. Meanwhile, Oman, Qatar, and UAE exhibit delayed effects, with positive CC-EPU relationships emerging over medium to long-term periods. These findings underscore the importance of developing tailored policy responses that account for both the magnitude and timing of climate change impacts across different GCC economic structures, highlighting a critical asymmetry that demands attention from regional decision-makers.