Εconomic growth and uncertainty

I examine the role of “uncertainty” and its relation to GDP Growth. According to the economic theory and other empirical studies, uncertainty has an economically negative association with Gross Domestic Product (GDP Growth). In order to capture uncertainty, I utilize the Economic Policy Uncertainty Index (E.P.U Index). In this paper, I run 2 regression models. Firstly, I run a Two-Stage Least Squares model using instrumental variables in order to detect if the relationship is statistically significant. The next step includes a Vector Autoregressive Model (VAR Model) for the estimation of response that a shock to uncertainty has on economic activity. The results confirm this negative relation for all the examined regions (continents) and countries. However, some of these countries have a statistically significant relationship and the response on Growth after a shock in EPU Index is relatively high, while other countries or regions have no significant impact.