Geopolitical risk, economic policy uncertainty, and bank stability in BRICS countries

Figures & data

Figure 1. Comparison of the GPR index (plotted on a log scale) with the economic policy uncertainty (EPU) index constructed by Baker et al. (2016).

Table 1. The structure of panel data by country

	Brazil	Russia	India	China	South Africa	Obs. by years
No. of banks (2009–2021)	17	14	30	33	11	105
Total no. of obs.	221	182	390	429	143	1365

Table 2. Descriptive statistics of variables

Variable	Mean	Std Dev.	Min.	Max.
Stability	1.4687	0.8748	−2.8084	5.3487
GPR	6.9375	0.4550	5.5932	7.6169
EPU	6.8334	2.1293	−0.5256	9.1593
LEV	0.0928	0.0788	−0.8571	0.9836
ROA	0.1015	0.0727	−0.1468	1.1120
CAP INV	0.5760	4.2087	−6.05	78.66
INT	0.5974	0.1468	0.2154	0.9556
SIZE	0.1986	0.0235	0.0152	0.2438
GDP	0.4921	0.3660	−0.7799	1.4169
INFL	2.0910	1.1459	−0.7281	5.5538
POL	−0.6186	0.3958	−1.3555	0.1636
RQ	−0.2163	0.2392	−0.5599	0.4491

Note: Author’s computation.

Table 3. Fisher-type unit-root test

	P	Z	L*	Pm
Stability	1335.4328***	−14.3794***	−31.1617***	54.9155***
GPR	381.9238***	−2.8362***	−4.6631***	8.3890***
EPU	394.9318***	−9.4499***	−9.1128***	9.0237***

Note: *** indicates significant at a 1% level.

Figure 2. Graph of the eigenvalue (stability - GPR, stability – GPR - EPU).

Table 4. Pedroni test for cointegration

	Modified Phillips–Perron t	Phillips–Perron t	Augmented Dickey–Fuller t
Stability, GPR	−8.0243***	−11.9913***	−10.7363***
Stability, EPU	−5.4905***	−13.745***	−13.336***
GPR, EPU	−3.7479***	−8.5791***	−18.6448***

Note: *** indicates significant at a 1% level.

Table 5. Estimation result of the PVAR models: stability

		Coeff.	Std. Err.	z	P > z
Panel A
Stability
	Stability L1.	0.3627	0.0806	6.42	0.000***
	GPR L1.	−0.0633	0.0242	−3.79	0.000***
GPR
	Stability L1.	−0.2236	0.0860	−4.87	0.000***
	GPR L1.	1.0104	0.0142	5.68	0.000***
Panel B
Stability
	Stability L1.	0.4619	0.1578	7.43	0.000***
	GPR L1.	−0.1095	0.0407	−4.72	0.000***
GPR
	Stability L1.	−0.1860	0.0921	−5.23	0.000***
	GPR L1.	0.3378	0.0581	12.67	0.000***

Note: PVAR-GMM Estimation.

Figure 3. IRF of stability, GPR for panel A.

Figure 4. IRF of stability, GPR for panel B.

Figure 5. IRFs of stability, GPR, EPU for panel A.

Figure 6. IRFs of stability, GPR, EPU for panel B.

Table 6. Estimation result of the PVAR models: stability

		Coeff.	Std. Err.	z	P > z
Panel A
Stability
	Stability L1.	0.4044	0.0881	4.54	0.000***
	EPU*GPR L1.	−0.0058	0.0062	5.72	0.000***
EPU*GPR
	Stability L1.	−0.0227	0.4900	6.78	0.000***
	EPU*GPR L1.	0.9379	0.0157	4.22	0.000***
Panel B
Stability
	Stability L1.	0.4797	0.1703	4.79	0.000***
	EPU*GPR L1.	−0.0176	0.0112	5.88	0.000***
EPU*GPR
	Stability L1.	−0.6586	0.6380	5.18	0.000***
	EPU*GPR L1.	0.5960	0.0652	6.34	0.000***

Note: PVAR-GMM Estimation.

Figure 7. Impulse response of stability, GPR*EPU for panels A and B.

Table 7. Definitions of variables

Variable	Definition	Data source
Dependent variable
Z-score	$Z-score=\frac{ROA+CA}{\sigma ROA}$	Authors’ calculation based on Eikon data
Independent variable
GPR	Geopolitical Risk Index	Caldara and Iacoviello (2022)
Moderating variable
EPU	Economic Policy Uncertainty Index	Baker et al. (2016), Ahir et al. (2022).
Control variables
LEV	Total debt/total assets	Eikon datastream
ROA	Ratio of net income/total assets	Eikon datastream
CAP INV	Ratio of capital expenditure to total assets	Eikon datastream
INT	Ratio of net interest income to average interest-earning assets	Eikon datastream
SIZE	Natural logarithm of bank assets	Eikon datastream
GDP	GDP growth rate	World Bank
INFL	Inflation based on the Consumer Price Index	World Bank
Institutional Quality
POL	The likelihood that the government will be destabilized or overthrown by unconstitutional or violent means. Range −2.5 to +2.5	World Governance Indicators
Regulatory Quality	The perceptions of the ability of the government to formulate and implement sound policies and regulations	World Governance Indicators

Note: This table defines the variables used in both the PVAR and GMM estimations.

Table 8. Result of bank stability sys-GMM model

Variables	Coef. Model 1	t-stat	Coef. Model 2	t-stat	Coef. Model 3	t-stat	Coef. Model 4	t-stat
	Panel A				Panel B
L.Stabilityt-1	.2777	14.23***	.3147	12.90***	.4230	42.55***	.6763	33.08***
GPR	−.1334	−2.28**	−.5502	−3.62***	−.8443	−2.81***	−.1856	−4.27***
LEV	.0241	2.92***	.5872	4.86***	10.838	33.13***	1.0902	4.13***
ROA	−.0673	−1.32	−.9250	−1.76*	.6471	19.87***	1.0790	7.10***
CAP INV	−.0040	−7.58***	−.0369	−1.50	−.0195	−10.95***	−.0094	−4.88***
INT	−.0107	−3.11***	−.0515	−1.35	−.5854	−12.64***	−.2311	−7.85***
SIZE	.4362	4.15***	−13.264	−4.26***	5.5670	16.78***	.2100	9.71***
GDP	−.0267	−8.90***	−.5444	−12.58***	−.4540	−8.24***	−.0139	−13.91***
INFL	.0020	3.77***	.0254	4.69***	−.0002	−0.01	−.0529	−5.11***
POL	.0199	23.77***	.6426	26.54***	.0542	6.71***	.0016	0.13
RQ	.0194	9.23***	.4907	7.16***	.0305	3.71***	.0413	4.00***
EPU	−.0460	−5.08***	−.5399	−3.82***	−.4130	−4.46***	−.2361	−2.11**
EPU*GPR			−6.5924	−3.49***			−2.2605	−2.77***
_cons	−.2296	−1.82*	9.8319	7.31***	1.1564	2.92***	.4779	1.97**
AR1	−1.2606 (0.0004)		−1.6883 (0.0000)		1.5354 (0.0015)		−1.0466 (0.0003)
AR2	−2.6318 (0.2075)		−2.7486 (0.2260)		−1.3584 (0.7200)		−1. 0879 (0.9299)
Sargan test	(0.2370)		(0.2514)		(0.8317)		(0.8253)
Country FE	Yes		Yes		Yes		Yes
Year FE	Yes		Yes		Yes		Yes
F test	1912.31 (0.0000)		3093.35 (0.0000)		1549.99 (0.0000)		8.9306 (0.0000)
No. of instruments	57		58		57		58
Observations	819		819		546		546

Note: *** significant at 1%, ** significant at 5%, * significant at 10%.

Baker, S. R., Bloom, N., & Davis, S. J. (2016). Measuring economic policy uncertainty. The Quarterly Journal of Economics, 131(4), 1593–1636. https://doi.org/10.1093/qje/qjw024

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Ahir, H., Bloom, N., & Furceri, D.(2022). The world uncertainty index (No. w29763). National bureau of economic research.

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