Is There A Relationship Between Financial Development And Geopolitical Risk Indices And Sustainable Development Goals? A Study on E3 Countries

Abstract

This paper explores the correlation between the Financial Development Index (FDI) and the Geopolitical Risk Index (GPR) in relation to Sustainable Development Goals (SDGs) within the E3 countries: Germany, France, and the United Kingdom. With limited research available on the interaction between these indices and the SDGs, this study aims to bridge that gap by focusing on SDG 13 (Climate Action) and SDG 7 (Affordable and Clean Energy). Using data spanning from 2000 to 2021, the analysis employs ARDL and Dynamic Conditional Correlation (DCC) models to assess the impact of geopolitical risks and financial development on these sustainability targets. Findings reveal that in Germany, there are significant long-term relationships between FDI and both SDG 13 and SDG 7, with geopolitical risks negatively impacting both goals. Economic growth was observed to have a stronger influence on SDG 13. In France, FDI positively affected SDG 13 but had no statistically significant impact on SDG 7. Geopolitical risks had adverse effects on both goals, while economic growth’s impact on SDG 7 was found to be insignificant. In the UK, no significant long-term relationships were identified; however, short-term analysis highlighted notable effects of FDI and geopolitical risks on SDG 7. The DCC analysis revealed that the relationship between SDG 13 and SDG 7 was relatively strong around 2000 but weakened over time.

JEL: C58, G20, O44, Q50