The Impact of Economic Policy and Political Risk on Economic Growth and Stock Returns: Evidence from Thailand
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Abstract
This study analyzed the effects of domestic and international political risks and economic policy uncertainty on macroeconomics and financial market in Thailand. This study applied several risk proxies constructed by big data, i.e., 1) the global economic policy uncertainty index (Baker et al., 2016) 2) the partisan conflict index (Azzimonti, 2016) 3) the trade policy uncertainty index (Caldara et al., 2020) 4) the geo-political risk index (Caldara and Iacoviello, 2018), and 5) the political uncertainty index (Luangaram and Sethapramote, 2018). Empirical results showed the impact of several global risk factors on economic growth in Thailand as follows. Firstly, trade policy uncertainty created significant and negative effects on short-run economic growth and also enlarged the economic volatility. Secondly, global economic policy uncertainty significantly increased the growth volatility. In case of financial market, the results revealed that stock returns plummeted when the global economic policy and Thai political uncertainty increased. Lastly, geo-political risk was found to increase the volatility of stock returns in Thailand.
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