Asymmetric effects of economic policy uncertainty, natural resources, and foreign investment on ecological sustainability

Abstract

The escalating challenges of environmental degradation and climate change are amplifying global uncertainties, posing significant risks to food security, water availability, and biodiversity. This study examines the asymmetric effects of economic policy uncertainty, economic growth, foreign direct investment, and natural resources on environmental quality in Saudi Arabia over the period from 1995 to 2024. Employing a robust set of econometric techniques—including unit root tests, cointegration tests, nonlinear autoregressive distributed lag (NARDL) modeling, and the Wald test—this research provides a comprehensive empirical analysis. The NARDL results indicate that positive shocks in economic policy uncertainty and economic growth significantly degrade environmental quality, as measured by the ecological footprint, while positive shocks in foreign direct investment and natural resource rents enhance environmental quality in the long run. Conversely, negative shocks in economic policy uncertainty and foreign direct investment improve environmental quality, whereas negative shocks in economic growth and natural resources exacerbate environmental degradation over the long term. Based on these findings, the study proposes targeted policy recommendations for Saudi Arabian policymakers to promote sustainable development and mitigate environmental pressures, aligning with the objectives of Vision 2030