Jou nal o
Risk and Financial
Managemen
A icle
Dynamic E ec s o Ma e ial P oduc ion and En i onmen al
Sus ainabili y on Economic Vi ali y Indica o s: A Panel
VAR App oach
João Lei ão1,2,3,4,* and Joaquim Fe ei a 2


Ci a ion: Lei ão, João, and Joaquim
Fe ei a. 2021. Dynamic E ec s o
Ma e ial P oduc ion and
En i onmen al Sus ainabili y on
Economic Vi ali y Indica o s: A Panel
VAR App oach. Jou nal o Risk and
Financial Managemen 14: 74.
h ps://doi.o g/10.3390/
j m14020074
Academic Edi o : Colin Michael Hall
Recei ed: 16 Decembe 2020
Accep ed: 3 Feb ua y 2021
Published: 8 Feb ua y 2021
Publishe ’s No e: MDPI s ays neu al
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published maps and ins i u ional a il-
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Copy igh : © 2021 by he au ho s.
Licensee MDPI, Basel, Swi ze land.
This a icle is an open access a icle
dis ibu ed unde he e ms and
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A ibu ion (CC BY) license (h ps://
c ea i ecommons.o g/licenses/by/
4.0/).
1NECE-Resea ch Cen e in Business Sciences, Facul y o Social and Human Sciences, Uni e si y o Bei a
In e io , 6200-001 Co ilhã, Po ugal
2NECE-Resea ch Cen e in Business Sciences, Uni e si y o Bei a In e io , 6200-209 Co ilhã, Po ugal;
[email p o ec ed]
3Cen e o Managemen S udies o Ins i u o Supe io Técnico (CEG-IST), Uni e si y o Lisbon,
1649-004 Lisboa, Po ugal
4Ins i u o de Ciências Sociais (ICS), Uni e si y o Lisbon, 1600-189 Lisboa, Po ugal
*Co espondence: [email p o ec ed]; Tel.: +351-275-319-853
Abs ac :
This s udy analyzes he ela ionships and dynamics be ween ma e ial p oduc ion, o eign
di ec in es men (FDI), economic ac i i y, ca bon p oduc i i y, he s ock ma ke , and g een ech,
bo h in a global and Eu opean con ex , using panel ec o au o eg essi e me hodology (PVAR). The
empi ical e idence ob ained o he Global G oup e eals ou signi ican and posi i e unidi ec ional
causali y ela ionships, whe e agg ega e ma e ial p oduc ion is he p ominen a iable. Fo he
EU-15 g oup, six signi ican causali y ela ionships we e de ec ed, among hem h ee nega i e and
h ee posi i e unidi ec ional ela ionships. The s ock ma ke s shock e eals o be he mos dominan
a iable, despi e FDI s anding ou as causing he g ea es shock e ec . Ne e heless, in he Eu opean
con ex , limi ed e idence o dema e ializa ion is de ec ed. Economic ecessions show a gene ally
nega i e e ec , which con as s wi h he economic Ki chin cycles, which e eal he e ec o a gene ally
posi i e ela ionship.
Keywo ds:
economic ac i i y; en i onmen al sus ainabili y; cycle; ma e ials; panel models; sus ain-
able inance
1. In oduc ion
The cu en scena io o global wa ming has led wo ld ins i u ions and poli ical
decision-make s o join a ious in e na ional discussion o ums on mi iga ion s a egies
and he implemen a ion o policies and measu es o igh pollu ion and, gene ally, o adop
clean ene gy sou ces. Howe e , hese e o s ha e had a limi ed e ec on he co-e olu ion
o economic and popula ion g ow h ajec o ies, esul ing in an inc easing demand o , and
use o , na u al esou ces and highe g eenhouse gas emissions. This aises he ques ion
o he obliga o y na u e o sus ainable economic de elopmen , aiming o implemen a
ci cula economy model as opposed o oday’s dominan model cen e ed on ossil ene gy
p oduc ion and he exploi a ion o esou ces. In he same line o hough , he li e a u e
con ains concep s and s udies o e e ence ha can illus a e be e he s ill unexplo ed
issue o he ela ionship be ween dema e ializa ion and sus ainable g ow h.
Highligh ed i s is he concep o dema e ializa ion, cha ac e ized by dec easing use
o ma e ial in he p ocess o p oducing inal p oduc s (He man e al. 1990). I also se es
o de ine a educ ion in he in ensi y o aw ma e ial in economic ac i i y (Be na dini and
Galli 1993) o ela i e o absolu e educ ion o he amoun o ma e ial and was e gene a ed
pe p oduc ion uni in he economy (Cle eland and Ru h 1998).
Fo he e o be e ec i e dema e ializa ion o he economy, wo p ocesses s and ou :
he ecycling p ocess, which imp o es he p oduc ’s quali y and ex ends i s use ul li e
J. Risk Financial Manag. 2021,14, 74. h ps://doi.o g/10.3390/j m14020074 h ps://www.mdpi.com/jou nal/j m
J. Risk Financial Manag. 2021,14, 74 2 o 20
(He man e al. 1990)
; and he in oduc ion o new echnology, which consis s o imp o ing
p oduc s’ cha ac e is ics, leading o new p oduc s wi h less in ensi e use o ma e ials
(Til on 1991;Be na dini and Galli 1993).
F om a pe spec i e o an ha monious ela ionship be ween g ow h and he en i on-
men , he li e a u e applies he heo e ical concep o he En i onmen al Kuzne s Cu e
(EKC), o in e ed U-shaped cu e, acco ding o which in a i s s age o indus ializa-
ion, he g ow h in domes ic income accompanies inc eased en i onmen al damage up
o a ce ain h eshold, wi h his diminishing a pos e io i while income con inues o g ow
(G ossman and K uege 1991
). In his iew, he in e ed U-shaped cu e occu s because a
he ini ial s age o economic g ow h, coun ies concen a e on inc easing employmen and
income (Dasgup a e al. 2002;Dinda 2004), and a a second s age hey ocus on imp o ing
he quali y o he en i onmen (Dinda 2004). In u n, he i s phase o he EKC may p esen
a mo e s able con igu a ion, as long as ins i u ional policies o discou age he exploi a ion
o na u al esou ces a e implemen ed (Panayo ou 1993). I is no ed, howe e , ha such
policies lead o as e adjus men o en i onmen al quali y in a phase o high incomes
(Panayo ou 1997).
The EKC hypo hesis has been pa ially a i ied h ough ee ade be ween economies,
in his way con ibu ing o inc eased en i onmen al damage, pa icula ly in de eloping
economies (S e n 1998). F om ano he angle, based on an economic model concen a ing on
he indus ial sec o , de eloping economies end o p esen lowe le els o en i onmen al
damage han de eloped ones because he la e is based on sec o s o g ea accumula ion
o physical and human capi al (G ossman and K uege 1991).
In his con ex , and despi e obse ing a endency owa ds g ea e in es men in
clean ene gy and ecological mode niza ion allied o eloca ion and in e na ionaliza ion o
indus y (Aleluia and Lei ão 2011), he en i onmen al si ua ion, in de eloped coun ies,
con inues o su e because he coal indus y bene i s om low elec ici y p ices, as opposed
o inc eased p ices o domes ic elec ici y (Jänicke e al. 1997).
The e o e, wi h he main easons o limi ing he ans e o esou ces, implemen ing
ecosys em cycles in economic cycles and espec ing esou ce ep oduc ion, he Ci cula
Economy concep is p omo ed. This is based on a p oduc ion-consump ion sys em ha
aims o maximize he p oduc i e sys em ollowing he linea o m: Na u e->Socie y-
>Na u al Ma e ial->Ene gy Flows; h ough cycles o ma e ial and enewable sou ces o
ene gy (Ko honen e al. 2018).
In he cu en con ex o globaliza ion and economic in eg a ion, in e dependences
and spillo e e ec s occu among ma ke s. Gi en he in o ma ion on he applica ion o
penal ies and sanc ions o lis ed companies whose beha io has an en i onmen al impac ,
bea ish beha io has been obse ed in ma ke s (Muoghalu e al. 1990;Laplan e and Lanoie
1994).
In his line o analysis, his s udy aims o analyze he beha io al e ec s and dynam-
ics o shocks be ween ma e ial p oduc ion, en i onmen al sus ainabili y and economic-
inancial a iables, using he panel VAR (PVAR) me hodology (Lo e and Zicchino 2006;
Ab igo and Lo e 2016). Following he same p e iously e e ed au ho s, his ad anced
econome ic me hodology p e en s endogenei y issues. In addi ion, i is no based on p io
heo y ega ding a iables’ ela ionships, and p o ides he possibili y o using wo o ecas -
ing echniques, such as he o hogonalized impulse- esponse unc ions, and he o ecas
e o decomposi ion a iance, o gauge o ecas e ec s on he sys em. Compa ing o he
VAR model, he cu en me hodology in use, allows he e ogenei y in panel es ima ion
p ocedu es.
The main con ibu ions o he li e a u e lie in analyzing dynamic eedback beha io o
ha o one-di ec ional shocks o igina ing in he a iables ep esen ing ma e ial p oduc ion,
en i onmen al sus ainabili y and economic- inancial indica o s, including exogenous ac-
o s and he sho - e m economic cycles o Ki chin. The p esen empi ical s udy p esen s
a wo- old con ibu ion o he li e a u e on sus ainable inance: (1) analyzing he s ill
unexplo ed ela ionships be ween ma e ials p oduc ion, g een g ow h, inno a i eness,
J. Risk Financial Manag. 2021,14, 74 3 o 20
and mac oeconomic undamen als, in o de o deepen he knowledge on how o os e he
p oduc ion and inancial s a egies o ien ed o a g een economy pa hway; and (2) un eiling
dema e ializa ion pa hs, in e ms o he ela ionship be ween sus ainable/g een g ow h
and mac oeconomic undamen als, conside ing he sho cycles o Ki chin.
The empi ical s udy is s uc u ed as ollows. I s a s wi h a e iew o he heo e ical
and empi ical li e a u e on he ela ionships among ma e ial p oduc ion, FDI, economic
ac i i y, en i onmen al sus ainabili y, s ock ma ke s, and en i onmen al echnologies, and
de eloping he esea ch hypo heses. Secondly, he econome ic model and espec i e
speci ica ion, a e displayed. Then he esul s a e p esen ed, oge he wi h hei discussion.
Finally, he conclusions a e p esen ed, p o iding he main e idence and implica ions o
policy-make s, he limi a ions o he s udy, and he guidelines o u u e esea ch.
2. Theo e ical F amewo k, E idence and Hypo hesis De elopmen
The subjec s o en i onmen al deg ada ion and clima e change, esul ing om he
accele a ed g ow h o indus ial and economic ac i i y in he 20 h cen u y and he begin-
ning o his one, ha e gained p ominence in he p incipal in e na ional o ums o poli ical,
en i onmen al and scien i ic discussion.
In e ms o a heo e ical pa adigm, he e is a ce ain con e gence a ound he hesis
ha dema e ializa ion, acco ding o he EKC hypo hesis, is only con i med o low le els o
g ow h (Ay es and Van Den Be gh 2005), which can a ise om he ac ha he cos s o ex-
ploi ing esou ces a e g ea e han he weal h p oduced (Kemp-Benedic 2018). Acco ding
o he same heo e ical amewo k o e e ence, he sp ead o echnology and echnological
p og ess do no in luence he dema e ializa ion p ocess (Magee and De ezas 2017).
In his connec ion, gi en he empi ical e idence ob ained p e iously, he s ylized ac
s ands ou ha he dema e ializa ion p ocess occu s abo e all in low income economies
(S einbe ge and K ausmann 2011;Shao e al. 2017)
o in pe iods o economic ecession
(Shao e al. 2017)
, whe eas in de eloped economies, g owing ma e ial consump ion is
shown as a cu en p ocess (Agnolucci e al. 2017). In addi ion, al hough ma e ial p o-
duc i i y ends o inc ease, dema e ializa ion does no become pa icula ly e iden , gi en
he subs an ial inc ease in he wo ld popula ion, leading o inc eased use o ma e ial
consump ion pe capi a (K ausmann e al. 2009).
In he empi ical li e a u e o e e ence, i is also wo h highligh ing he obse a ion
o ha dema e ializa ion p ocess, acco ding o he EKC hypo hesis, in he con ex o
de eloped o indus ialized economies (Canas e al. 2003;Guzmán e al. 2005;Dong e al.
2017;Po hen and Welsch 2019).
In sho , i is indica ed ha a lack o synch ony be ween le els o economic ac i i y
and ma e ial p oduc ion/consump ion has become mo e e iden (Vehmas e al. 2007;
Zhang e al. 2017), despi e also inding a endency owa ds inc eased dema e ializa ion in
as -g owing eme ging economies, such as he case o China (Dai and Liu 2018). The e o e,
he ollowing hypo hesis is conside ed:
Hypo hesis 1 (H1).
The economic ac i i y and ma e ial p oduc ion deno e a nega i e causali y
ela ionship.
Conside ing he causal nexus es ablished in he li e a u e be ween economic ac i i y
and CO
2
emissions, di e ging isions a e ound, based on di e en empi ical app oaches,
which a e wo h e iewing in he amewo k his s udy belongs o. On one hand, he e is
an indica ion o decoupling be ween economic ac i i y and CO
2
emissions (Wu e al. 2018;
Chen e al. 2018;Dai and Liu 2018;Vo e al. 2019), and on he o he hand, i unde lines he
lack o any s a is ically signi ican ela ionships ega ding he causal nexus o e e ence
(Cai e al. 2018)
as well as a mode a e posi i e e ec be ween economic ac i i y and CO
2
emissions (Kalai zidakis e al. 2018). This leads o he ollowing esea ch hypo hesis:
Hypo hesis 2 (H2).
The economic ac i i y and ca bon p oduc i i y p esen a posi i e causali y
ela ionship.
J. Risk Financial Manag. 2021,14, 74 4 o 20
B inging o his s udy he issue ela ed o he in eg a ion o ma ke s and hei in e de-
pendences, i is conside ed necessa y o s udy he beha io o hose ma ke s when aced
wi h a shock o ma e ial p oduc ion and CO
2
emissions. Howe e , he li e a u e ocuses
on commodi y ma ke s, on ca bon ene gy ma ke s and enewable ene gy ma ke s and
hedging s a egies, and does no gene ally examine he ela ionship be ween s ock ma ke s,
in ela ion o a a ia ion in ma e ial p oduc ion o be ween s ock ma ke s and a ia ion in
ca bon le els.
I should be poin ed ou ha some s udies ind no ela ionship be ween commodi y
ma ke s and s ock ma ke s (Huang e al. 1996;Singhal and Ghosh 2016), despi e inding a
posi i e ela ionship wi h oil company s ocks (Huang e al. 1996). Spillo e e ec s a e no
obse ed be ween me al commodi y ma ke s and he s ock ma ke (I andous 2017).
F om ano he pe spec i e, he weak pe o mance o s ock ma ke s has a posi i e e ec
on oil commodi y p ices (Jain and Biswal 2016), indica ing a nega i e ela ionship be ween
hese wo ypes o ma ke . Indeed, poin ed ou as examples o be e hedging s a egies a e
in es men in s ock and oil commodi y ma ke s, in ha a all in p ices causes inc eased
ola ili y, leading o a signi ican asymme ical e ec be ween p ices o he commodi y and
o he s ock ma ke s (Sado sky 2014). In addi ion, commodi y ma ke s eme ge as ma ke s
o mone a y compensa ion, ma ke ins umen s and subs i u e ins umen s, conce ning
in es men s based on a sha e po olio (Ba en e al. 2010).
The e o e, he ollowing hypo hesis is o mula ed:
Hypo hesis 3 (H3).
The s ock ma ke and ma e ial p oduc ion deno e a nega i e causali y ela-
ionship.
Conce ning he ela ionship be ween s ock ma ke s and ca bon p oduc i i y, he
empi ical li e a u e only con ains s udies on he ela ionships be ween he indices o sha es
o e e ence and hose o he ca bon ma ke .
To op imize he alue hoped o om an asse po olio, a sho posi ion in he oil and
ca bon ma ke s is sugges ed (Eu opean Union Allowances), as opposed o a long posi ion
in s ock ma ke s (Luo and Wu 2016). Howe e , he ela ionship wi h he ca bon ma ke is
ound o be he e ogeneous, in ha s ock ma ke pe o mance has a nega i e e ec on he
ola ili y o he ca bon ma ke s o he EUA and ERU (Eu opean Reduc ion Uni s), and has
a posi i e impac on he ola ili y o he CER (Ce i ica ed Emission Reduc ion) ma ke
(Reckling 2016).
The ca bon ma ke has a posi i e in luence on he sha es o g een ene gy companies,
while ha ing a nega i e impac on hose o ossil uel companies (da Sil a e al. 2016),
o ming posi i e spillo e e ec s o he ola ili y o he ca bon ma ke on he g een ene gy
sha e ma ke (Du a e al. 2018).
I is no ed ha de elopmen o he inancial ma ke has s imula ed he demand o
clean ene gy (Mamun e al. 2018), which means a nega i e ela ionship be ween inancial
ma ke s and CO2emissions (Pa ama i e al. 2016;Pa ama i e al. 2017).
Fu he mo e, when a gi en company aces judicial ac ions, penal ies, sanc ions o
any in o ma ion ega ding en i onmen al deg ada ion, i will be e alua ed nega i ely
by in es o s who will hea ily penalize i s sha es on he ma ke (Muoghalu e al. 1990;
Laplan e and Lanoie 1994). The e o e, conside ing he li e a u e p esen ed, he ollowing
hypo hesis is p esen ed:
Hypo hesis 4 (H4).
The s ock ma ke and ca bon p oduc i i y ha e a posi i e causali y ela ion-
ship.
Conce ning he ela ionship be ween Fo eign Di ec In es men (FDI) and CO
2
emis-
sions, he e is a no able sho age o p e ious empi ical e idence. Howe e , i can be
con i med ha he ela ionship be ween FDI and CO
2
emissions is essen ially posi i e (Lau
e al. 2014;Seke e al. 2015), his being mo e e iden in he long e m (Pa ama i e al. 2016),
which demons a es ha he economy’s deg ee o openness leads o inc eased CO
2
emis-
J. Risk Financial Manag. 2021,14, 74 5 o 20
sions. Analyzing he impac o adop ing new p ocesses o al e na i e o ms o echnology
on CO
2
emissions, a posi i e associa ion is also ound (Pa ama i e al. 2017), con i ming
he impo ance o mul ina ionals implemen ing e icien echnology and p ocesses.
Consequen ly, he ollowing esea ch hypo hesis is conside ed:
Hypo hesis 5 (H5). The FDI and ca bon p oduc i i y ha e a nega i e causali y ela ionship.
The li e a u e on he ela ionships o in e ac ion be ween inancial ma ke s and FDI
concludes ha : cu ency de alua ion s imula es o eign in es o s o acqui e domes ic asse s
(F oo and S ein 1991); FDI con ibu es o he p og ess o mac oeconomic undamen als
(Claessens e al. 2001)
, p omo ing inancial ma ke s’ de elopmen (Agbloyo e al. 2013),
which means agen s ha e a g ea e appe i e o local asse s such as in es o s and unds
(Boye and Zheng 2009)
, con ibu ing o inc eased sha e p ices (Al a o e al. 2004;Liza do
and Mollick 2009;Azman-Saini e al. 2010). F om he abo e, he ollowing hypo hesis is
o mula ed:
Hypo hesis 6 (H6). The FDI and s ock ma ke deno e a posi i e causali y ela ionship.
Conside ing he causal nexus es ablished in he li e a u e be ween FDI and economic
ac i i y, he e iciency o he o me is ound o be g ea e han domes ic in es men ,
inasmuch as de eloping economies, especially, ace es ic ions in accessing inance in
in e na ional ma ke s (De G ego io 1992). Indeed, he posi i e e ec is g ea e in economies
wi h s ong policies on in e na ional ade (De G ego io 1992), abo e all hose di ec ed
owa ds expo s (Balasub amanyam e al. 1996).
FDI is a d i e o echnology ans e , con ibu ing o economic g ow h (Li and Liu
2005;Lei ão and Bap is a 2011;Makiela and Oua a a 2018), abo e all in economies wi h
g ea capaci y in e ms o echnology abso p ion and human capi al (Li and Liu 2005).
Added o his is he ac ha economies wi h be e indica o s o inancial de elopmen (Lee
and Chang 2009;Iamsi a oj and Uluba¸so˘glu 2015) and comme cial openness (Iamsi a oj
and Uluba¸so˘glu 2015) a e mo e able o a ac FDI.
Mo eo e , cap u ing FDI p omo es p oduc i i y spillo e s, abo e all backwa d spillo e s
(e.g., linkages wi h domes ic i ms in di e en indus ies, such as ups eam supplie s)
(Ja o cik 2004).
Howe e , i is also ue ha FDI can ha e a nega i e in luence on expo ing economies
whe e he p ima y sec o domina es, signaling ha FDI is nega i ely ela ed o he abun-
dance o esou ces (He ze 2012). Conside ing he abo e, he ollowing hypo hesis is
o mula ed:
Hypo hesis 7 (H7). The FDI and economic ac i i y p esen a posi i e causali y ela ionship.
In ca ying ou his s udy, i is also necessa y o conside he impo ance o economic
ac i i y in de e mining inancial ma ke beha io . He e, he causal nexus be ween he s ock
ma ke and economic ac i i y is cha ac e ized by a posi i e ela ionship (Schwe 1990;
Choi e al. 1999).
Consequen ly, ma ke s’ beha io is conside ed an impo an p edic i e indica o o he
beha io o economic ac i i y (Choi e al. 1999;Hassapis and Kaly i is 2002). Fu he mo e,
inancial de elopmen has a dominan ole in de e mining he le el o economic ac i i y,
especially by de e mining he le el o liquidi y, which is posi i ely ela ed o economies’
con empo a y and u u e beha io (Le ine and Ze os 1998).
The e is also p e ious e idence o a posi i e co ela ion be ween bila e al comme cial
ela ionships and he s ock ma ke (Ta a es 2009). Thus, he ollowing esea ch hypo hesis
is aised:
Hypo hesis 8 (H8).
The s ock ma ke and economic ac i i y ha e a posi i e causali y ela ionship.

J. Risk Financial Manag. 2021,14, 74 6 o 20
Mo e ecen ly, he echnological inno a ion appea s in he global policy agenda as
a means o ca bon mi iga ion and o he ansi ion o a sus ainable and g een economy.
Howe e , al hough some empi ical e idence shows ha echnological inno a ion becomes
an impo an ac o in ca bon mi iga ion (Fe nández e al. 2018), o he s udies iden i y he
possibili y o a ebound e ec (Magee and De ezas 2017;Wang e al. 2019;Cheng e al.
2019) o om ano he angle, echnological de elopmen does no dec ease gas emission
(Sama gandi 2017;Mensah e al. 2018).
Conside ing he p e ious e idences, he ollowing hypo hesis is conside ed:
Hypo hesis 9 (H9).
The ca bon p oduc i i y and g een echnology ha e a nega i e causali y
ela ionship.
3. Me hodology
3.1. Econome ic Model
This s udy aims o de e mine he ela ionships o causali y and he e ec s o exogenous
shocks on economic- inancial indica o s, esou ce p oduc i i y indica o s and ma e ial
p oduc ion indica o s, using a VAR model wi h panel da a (PVAR) (Lo e and Zicchino
2006;Ab igo and Lo e 2016).
The ma hema ical o mula ion o he PVAR model is as ollows:
Yi, =Yi −1A1+Yi −2A2+. . . +Yi −p+1Ap−1+Yi −pAp+Xi B+µi+ei
i∈{1, 2, . . . , N}, ∈{1, 2, . . . , Ti}(1)
whe e: ico esponds o coun ies encompassed in he p esen s udy; is he ime ho izon o
each i;
Yi
is a kx1 ec o o endogenous a iables;
Xi
is a lx1 ec o o exogenous a iables;
µi
is a 1xk ec o o indi idual ixed e ec s; and and
ei
is a 1xk ec o o idiosync a ic
e o s (
ei
~ i.i.d.). The kxk ma ices:
A1
,
A2
,
. . .
,
Ap
,
Ap−1
; and he lxk ma ix:
B
; ep esen
he es ima ed pa ame e s. The e o e, he PVAR model assumes ha c oss-sec ions hold
same uni s in da a gene a ing p ocess, which esul in common pa ame e s in ma ixes:
A1
,
A2
,
. . .
,
Ap
,
Ap−1
; and
B
; encompassing he e ogenei y h ough panel-speci ic ixed e ec s
(Hol z-Eakin e al. 1988;Ab igo and Lo e 2016).
Bea ing in mind ha
µi
is co ela ed wi h he lagged eg esso s, he use o OLS
es ima o can lead o bias o he coe icien s (Nickell 1981;Ab igo and Lo e 2016). Fo
educing po en ial bias, he Helme ans o ma ion p ocedu e is pe o med (A ellano and
Bo e 1995). This leads o emo al o he u u e means (i.e., he a e age o he se o u u e
obse a ions a ailable o each uni o ime, pe coun y s udied), he eby con ibu ing
o o hogonali y be ween he dependen a iables and he lagged eg esso s, as well as
allowing hei use as ins umen al a iables1and use o he GMM es ima o .
To allow analysis o he o ecas e o a iance decomposi ion (FEVD) and he sim-
ula ed coe icien s o he impulse- esponse unc ions (IRF), he s abili y condi ion o he
es ima ed model should be alida ed, i.e., he modulus eigen alues o a companion ma ix
A should be in an in e al [0, 1] (Lü kepohl 2005). A e check he s abili y condi ion o he
es ima ed model, FEVD and IRF a e used, as hese ools can de e mine he dynamics o
he endogenous a iables in ela ion o exogenous shocks. These ools a e exp essed as
ollows:
FEVD ≡φi=(IK,i=0
∑i
j=1φ −jAj,i=1, 2, . . . (2)
IRF ≡Yi +h−E[Yi +h]=∑h−1
i=0ei( +h−i)φi(3)
To do so, he o hogonal decomposi ion o Cholesky is pe o med, whe eby he o de
o a iables’ en y is decided p ima ily by he g ea e deg ee o exogenei y o each o he
a iables o he model’s selec ed speci ica ion.
1The ins umen al a iables a e speci ied acco ding o he p ocedu es p oposed by Hol z-Eakin e al. (1988).
J. Risk Financial Manag. 2021,14, 74 7 o 20
3.2. Da a, Va iables, and Speci ica ion o he Model
This s udy analyzes he esponse dynamics o economic, inancial, p oduc ion and
esou ce sus ainabili y indica o s, in ela ion o an exogenous shock.
The e o e, annual unbalanced panel da a a e used, e e ing o he pe iod 1990–2016
o 24 coun ies (A gen ina, Aus alia, Aus ia, Belgium, B azil, Canada, China, Denma k,
Finland, F ance, Ge many, G eece, I eland, I aly, Japan, Mexico, Ne he lands, No way,
Po ugal, Russia, Spain, Sweden, Uni ed Kingdom and Uni ed S a es o Ame ica). The
pe iod o he sample is jus i ied o wo easons: (i) limi ed access o da a; and (ii) his being
he longes pe iod a ailable (wi h annual equency) o ca y ou his s udy. The da a we e
ga he ed om he ollowing da abases: In es ing.com; UNCTAD; OECD S a is ics; B i ish
Geological Su ey; and Wo ld Bank.
In he speci ica ion selec ed o he model, i e endogenous a iables a e conside ed,
namely: MAT_PR
i
, ep esen ing agg ega e p oduc ion (in ons) o he g oups o ma e ial
selec ed
2
in each coun y included; FDI
i
, ep esen ing en y lows o Fo eign Di ec In es -
men (FDI), de la ed by he GDP de la o , in each coun y included; CO
2
_PR
i
, which is an
incomple e p oxy o he ca bon p oduc i i y o each coun y; GDP-PC
i
, which ep esen s
he na ional weal h, a cons an p ices, o each coun y; SMKT
i
, ep esen ing he s ock
ma ke indices o e e ence o each coun y; and ENV_TECH
i ,
, ep esen ing he amoun o
en i onmen al- ela ed echnologies (e.g., pa en s).
Conce ning he a iables selec ed, in Table 1p esen ed below, he associa ed concep s,
desc ip ion, uni s, and s a is ical sou ces a e displayed.
Table 1. Va iables selec ed.
Va iables Associa ed Concep s Desc ip ion Uni s S a is ical Sou ces
Ma e ial P oduc ion
(MAT_PR)
Agg ega e Ma e ial
P oduc ion
P oduc ion o mine als
commodi ies Tons B i ish Geological
Su ey
Fo eign Di ec
In es men (FDI)
Fo eign Di ec
In es men o FDI
Inwa d and ou wa d
lows and s ock
US Millions de la ed by
GDP de la o UNCTAD
G oss Domes ic
P oduc (GDP_PC) Economic Ac i i y To al o GDP pe capi a US Millions in cons an
p ices UNCTAD
CO2p oduc i i y
(CO2_PR) Ca bon p oduc i i y
GDP pe uni s o
ene gy- ela ed CO2
emissions
US dolla pe kilog am OECD
S ock Ma ke s (SMKT) S ock Ma ke s Majo domes ic s ock
ma ke s indexes Index poin s in es ing.com
En i onmen - ela ed
echnologies
(ENV_TECH)
G een Tech
Pa en s ela ed wi h
en i onmen al
managemen , wa e
adap a ion and clima e
change mi iga ion
Uni s o pa en s OECD
Sou ce: Own elabo a ion.
The nex s ep was loga i hmic ans o ma ion o he se ies, in o de o ensu e g ea e
con e gence o he coe icien s es ima ed and con ibu e o be e adjus men o he model.
Aiming o a subsequen compa a i e analysis, he s udy’s me hodological design
conside s he possibili y o de e mining he esponse dynamics in wo g oups o coun ies.
The i s g oup co esponds o all wen y- ou coun ies in he sample (Global G oup). The
second co esponds o he 15 Eu opean Union coun ies
3
(EU-15 G oup). Fo each g oup,
2
Gi en he limi ed access o da a, hese we e collec ed e e ing o he g oup o me als and he g oup o mine als. Conce ning he g oup o me als,
he ma e ials included in he s udy a iable a e: aluminium, s eel, cadmium, bismu h, lead, cobal , coppe , in, i on, pig i on, li hium, magnesium,
manganese, nickel, gold, sil e , pla inum and i s de i a i es and zinc. The g oup o mine als includes he ollowing ma e ials: asbes os, alumina,
ba i e, eldspa , ock phospha e, gypsum, g aphi e, mica, sal and zi conia.
3Fo he Eu opean Union, only Luxembou g was no included due o he una ailabili y o da a.
J. Risk Financial Manag. 2021,14, 74 8 o 20
h ee dummy a iables a e conside ed, aiming o cap u e he main c ises o igina ed om
eme ging ma ke s (
DC ises EM)
, and de eloped ma ke s (
DC ises DM)DC ises EMDC ises DM4
,
co e ing wo economic cycles o Ki chin
5
, and ano he dummy a iable ha cha ac e izes
ecession pe iods in he la ge economies in each g oup DGlobal;DEUDGlobalDEU6.
The selec ed speci ica ion o he model is as ollows:
Yi =A0+A1Y −p+DC ises EM +DC ises DM +DGlobal/EU +µi+ei ,ei ∼i.i.d.
i∈{1, 2, . . . , 24}GLOBAL, ∈{1990, 1991, . . . , 2016}GLOBAL
i∈{1, 2, . . . , 14}EU-15, ∈{1990, 1991, . . . , 2016}EU-15
(4)
whe e, Yi ≡{MATPRi FDIi GDPPCi CO2PRi SMKTi ENV_TECHi }.
4. Resul s and Discussion
4.1. Empi ical E idence
The esul s ob ained om es ima ing he PVAR model and e idence om he dynamic
analysis a e now p esen ed, using h ee ools o es ing and o ecas ing: G ange causali y,
FEVD, and IRF.
Be o e es ima ing he model, diagnos ic es s we e pe o med o ensu e no misspec-
i ica ion. To do so, he c oss-sec ional dependence was e i ied (Pesa an 2015), which
led o applying he uni oo es CIPS (Pesa an 2007), p oceeding o di e en ia ion o
he a iables, in o de o ensu e hey became s a iona y o in eg a ed o o de ze o, ha
is, I(0)
7
. To de e mine he op imal numbe o lags and momen s, he And ews and Lu
(2001)
es was applied. I admi s one op imal lag, conside ing om wo un il i e lags (in
bo h g oups) conce ning ins umen al a iables. The op imal numbe o lags was selec ed
agains applica ion o he c i e ion ha minimize he J-s a is ic o Hansen (1982).
In o de o compa e he wo g oups s udied, i.e., Global G oup and EU-15 G oup, and
a e pe o ming he in oduc o y es s o es ima ion o he PVAR
8
model, he coe icien s
es ima ed we e ob ained (c . Tables 2and 3).
In Table 2p esen ed below, e e ing o he Global G oup, he alues ob ained o
he J-s a is ic o Hansen (1982) de e mine ha he null hypo hesis is no ejec ed, he eby
a i ying he alidi y o he ins umen s used in es ima ing he model.
In model 1, and he dependen a iable being MAT_PR
; he a iables wi h g ea es
s a is ical signi icance a e MAT_PR
−1
and GDP_PC
−1
, wi h a posi i e e ec and a nega i e
e ec , espec i ely, a he 5% le el. The Dummy C ises DM shows a posi i e and s a is ically
signi ican e ec , a he 5% le el, whe eas he Dummy Global a ec s nega i ely and
signi ican ly, a he 1% signi icance le el.
In model 2, wi h he dependen a iable: FDI
; he a iables FDI
−1
and SMKT
−1
a e he mos p edominan , exhibi ing a posi i e and signi ican e ec , a he 1% and 5%
signi icance le el, espec i ely. The MAT_PR
−1
and CO
2
_PR
−1
deno e a posi i e and
nega i e e ec on he beha io o FDI
, espec i ely, wi h associa ed s a is ical signi icance
4
The dummy a iable
DC ises EM
has he alue o 1 in he annual pe iods o 1991, 1994, 1995, 1997–2000, 2002, and he alue o ze o in he emaining
pe iods. The pe iods unde analysis co espond o di e en in e na ional c ises, such as: he oil c isis (1991); he Mexican economic c isis (1994/1995);
he Asian mone a y c isis (1997); he Russian mone a y c isis (1998); he B azilian mone a y c isis (1999); he A gen inian economic c isis (1999–2000);
and he Sou h Ame ican economic c isis (2002). The dummy a iable
DC ises EM
equals o 1 in he annual pe iods o 2001 and 2007–2010, and 0 in
o he pe iods .These pe iods co espond o he do com bubble (2001), he subp ime c isis (2007–2008) and he Eu opean deb c isis (2009–2010).
5
The Ki chin cycles a e classi ied as sho - e m cycles, i.e., cycles las ing 4 yea s. The e o e, he Ki chin cycles ound in he pe iod o analysis
co espond o he pe iods 1997–2000 and 2007–2010.
6
The dummy a iable
DGlobal
ep esen s economic ecession in he USA and People’s Republic o China, ha ing he alue o 1 in he annual pe iods
o 2008 and 2009 and he alue o ze o in he o he pe iods. The dummy a iable
DEU
co esponds o economic ecession in Ge many, F ance and
he Uni ed Kingdom, ha ing he alue o 1 in he annual pe iods o 1991–1992, 2002–2003 and 2008–2009 and he alue o ze o in he o he pe iods
analysed.
7
In he Global G oup, he FDI, SMKT and ENV_TECH a iables appea as s a iona y a le els, whe eas in he EU-15 G oup only FDI is s a iona y, a
le els.
8The ables o he es s applied can be ob ained upon eques o he au ho s.
J. Risk Financial Manag. 2021,14, 74 9 o 20
o 10%. The e o e, he Dummy C ises EM is ound o ha e a posi i e and signi ican e ec
on FDI
, a he 1% signi icance le el, whe eas he Dummy Global a ec s nega i ely he
FDI , a he 10% le el.
In model 3, wi h he dependen a iable: GDP_PC
; he e a e posi i e e ec s o
MAT_PR
−1
and GDP_PC
−1
, a he 1% signi icance le el. In u n, bo h he Dummy C ises
and Dummy Global, he e is mixed e idence, de ec ing a posi i e and nega i e e ec ,
espec i ely, a a 1% le el o signi icance.
In model 4, conside ing as dependen a iable: CO
2
_PR
; GDP_PC
−1
and ENV_TECH
−1
a e ound o ha e a posi i e, and signi ican e ec , a he 1% signi icance le el, while o
he a iable CO
2
_PR
−1
nega i e and signi ican e ec s a e ound, a he 1% signi icance
le el ei he .
In model 5, wi h he dependen a iable: SMKT
; SMKT
−1
and CO
2
_PR
−1
a e ound
o ha e a posi i e and signi ican e ec , a he 1% and 5% signi icance le el, espec i ely.
The Dummy Global p esen s, wi hin he g oup o dummy a iables, as he p edominan
inso a as a ec s nega i ely and signi ican ly he FDI
, a he 1% s a is ical signi icance
le el.
In model 6, wi h he dependen a iable: ENV_TECH
; he a iables ENV_TECH
−1
and MAT_PR
−1
pe o m as he p edominan ones, inso a as a ec posi i ely he FDI, a
he 1% and 5% signi icance le el. Rega ding he Dummy C ises EM and Dummy C ises DM
e idence posi i e and signi ican e ec , a he 1% and 5% signi icance le el, espec i ely.
Unlike, he Dummy Global a ec s nega i ely a he 10% signi icance le el.
Table 2. The Global G oup PVAR es ima o s.
Models (1) (2) (3) (4) (5) (6)
Dependen Va iable MAT_PR FDI GDP_PC CO2_PR SMKT ENV_TECH
MAT_PR 0.4120 ** 1.9798 * 0.0719 *** −0.0941 0.3907 1.0105 **
[2.5700] [1.9000] [3.0400] [−1.2700] [1.3500] [2.3700]
FDI −0.0136 0.8452 *** −0.0030 0.0038 0.0235 −0.0048
[−1.3000] [8.8300] [−1.5500] [0.8000] [0.7900] [−0.1700]
GDP_PC −1.0465 ** 0.0254 0.3489 *** 0.8836 *** −1.1130 −0.6140
[−1.9700] [0.0100] [3.4100] [3.3700] [−0.7500] [−0.4000]
CO2_PR 0.5478 −5.2331 * −0.0535 −0.5501 *** 1.7834 ** 0.5847
[1.4300] [−1.7200] [−0.7800] [−3.1900] [2.3000] [0.6500]
SMKT −0.0147 0.1931 ** −0.0033 −0.0058 0.8226 *** 0.0146
[−1.3500] [2.0900] [−1.6200] [−1.1800] [23.0100] [0.4500]
ENV_TECH −0.0231 0.0671 0.0030 0.0209 *** 0.0335 0.9463 ***
[−1.6400] [0.5400] [0.9700] [2.8400] [0.7400] [20.0700]
Dummy C ises EM −0.0069 0.2746 ** 0.0110 *** 0.0080 −0.0589 0.0054
[−0.4700] [1.6100] [4.6200] [1.2600] [−1.6400] [0.1300]
Dummy C ises DM 0.0560 ** 0.0575 0.0189 *** −0.0010 −0.0146 0.1384 **
[2.3300] [0.3200] [5.3600] [−0.1100] [−0.3300] [2.4800]
Dummy Global −0.1571 *** −0.3331 * −0.0514 *** −0.0037 −0.3125 *** −0.1140 *
[−4.7100] [−1.9600] [−9.3300] [−0.3800] [−4.7100] [−1.9100]
Legend: Tes o o e iden i ying es ic ion: Hansen’s J Chi
2
(108) = 121.8580 (p= 0.171). No es: ***, **, * indica e signi icance a 1%, 5% and
10%, espec i ely. Z-s a is ics a e in squa e b acke s. Sou ce: Own elabo a ion.
In he compa a i e analysis, in Table 3, p esen ed below, e e ing o he EU-15 G oup,
i is highligh ed ha gi en he alues ob ained o he J-s a is ic o Hansen (1982), he
null hypo hesis is no ejec ed, he eby a i ying he alidi y o he ins umen s used in
es ima ing he model.
Taking as a e e ence he esul s o model 1
0
s es ima ion, wi h he dependen a iable
being MAT_PR
; bo h GDP_PC
−1
and SMKT
−1
show nega i e and posi i e signi ican
e ec s, espec i ely, a he 1% signi icance le el. In u n, conce ning exogenous a iables,
only he Dummy C ises e eals a posi i ely signi ican e ec , a a 1% le el.
J. Risk Financial Manag. 2021,14, 74 16 o 20
in Eu opean coun ies can be jus i ied h ough he app ecia ion o Eu opean cu encies.
In he global con ex , he e ec is i ele an because he Global G oup includes eme ging
coun ies whe e inancial c ises we e onse .
In u n, Dummy C ises DM, in he Eu opean con ex , has a nega i e and signi ican
impac only on he s ock ma ke . This may indica e ha he e was con agion h ough
he bond ma ke channel (Dungey e al. 2010), which in his case, means so e eign deb
and colla e alized deb obliga ions ma ke s. Fu he mo e, in he global con ex , i deno es
a posi i e e ec on economic ac i i y, echnology, and ma e ial p oduc ion, which a e
associa ed wi h he agg essi e mone a y policies by FED and ECB (Dungey e al. 2006),
smoo hing he c ises e ec and con ibu ing o he boos o he espec i e economies. Thus,
i is de e mined ha he c ises a e no alike, aking in o accoun ha he me hodology
applied in Dungey e al. (2006,2007,2010) is no a all simila o ha o he p esen
s udy. Howe e , inancial c ises do no e eal a nega i e e ec on ene gy e iciency and
en i onmen al deg ada ion, which is con as ing wi h p e ious indings o Mimouni and
Temimi (2018) and Pacca e al. (2020).
5. Conclusions
5.1. Empi ical Findings and Implica ions
Conside ing he empi ical indings, conce ning he Global G oup, ma e ial p oduc ion
is ound o be he p edominan ac o in he posi i e de e mina ion o he beha io o
FDI, economic ac i i y and g een ech. In his con ex , i is unde lined ha he indus i-
aliza ion p ocess emba ked on in ecen decades, in eme ging economies, has p omo ed
he c ea ion, acquisi ion and in es men o companies in indus ial sec o s, con ibu ing
o global economic g ow h (posi i e ela ionship om agg ega e ma e ial p oduc ion o
FDI and economic ac i i y). Me ge s and acquisi ions among he la ges lis ed me al and
mine al companies can be connec ed o he posi i e e ec on ma ke s. In u n, he g ea e
in es men in new, cleane and mo e e icien ene gy can be a he o igin o inc eased
ca bon p oduc i i y (posi i e ela ionship om agg ega e ma e ial p oduc ion o g een
ech and posi i e ela ionship om economic ac i i y o ca bon p oduc i i y).
Rega ding he EU-15 G oup, he empi ical indings e eal six signi ican ela ionships
in which a shock om s ock ma ke s induces posi i e e ec s on agg ega e ma e ial p o-
duc ion and FDI; a shock om economic ac i i y deno es a nega i e e ec on agg ega e
ma e ial p oduc ion; a shock om agg ega e ma e ial p oduc ion a ec s posi i ely ca bon
p oduc i i y; a shock om FDI impac nega i ely ca bon p oduc i i y; and a shock om
ca bon p oduc i i y deno es a posi i e e ec on s ock ma ke s beha io . In addi ion, he
s ock ma ke is he p edominan ac o .
I can be concluded ha , in he Eu opean con ex , despi e he endea o by agen s
o educe uel ene gy dependence, he Eu opean economy is s ill based on a uel ene gy
model. Howe e , he e is a sligh endency o change he pa adigm o a uel ene gy model,
which is obse ed based on nega i e ela ionship be ween economic ac i i y and agg ega e
ma e ials p oduc ion, as well as h ough a posi i e ela ionship be ween agg ega e ma e ial
p oduc ion and ca bon p oduc i i y. An impo an ac o o his scena io may be he
launch o he Eu opean ca bon ma ke . Ne e heless, despi e obus in es men in R and
D o achie ing ene gy e iciency o ca bon mi iga ion p ocesses, i seems no o each he
con inuous inc ease in CO
2
emissions (nega i e FDI and ca bon p oduc i i y), which leads
o he companies’ inancing mo ing o wa d o he g een bond ma ke as a d i ing o ce
o g een de elopmen and inno a ion (nega i e ela ionship be ween he s ock ma ke
and FDI; posi i e ela ionship be ween ca bon p oduc i i y and s ock ma ke ) as well as
o inancing e iciency p ocesses o p oduc ion, esul ing in a posi i e con agion owa d o
he s ock ma ke (posi i e ela ionship be ween ma ke s and ma e ial p oduc ion).
In sho , he indings om he p esen empi ical s udy e i ies ha ma e ial p oduc ion
is s ill a key d i e o he global economy because p oduc ion in luences bo h mac oe-
conomic undamen als and inno a ion ac i i ies. Fo i s u n, in he Eu opean economy
con ex , ma e ial p oduc ion only posi i ely in luences ca bon p oduc i i y, which indi-

J. Risk Financial Manag. 2021,14, 74 17 o 20
ca es ha his economic block seeks o be adop ing an economic en i onmen ally- iendly
g ow h model. I should be no ed ha he dema e ializa ion p ocess is no de ec ed in his
s udy, in a global con ex , inso a as he economic ac i i y keeps s ill based on an ene gy
uel model because uel p ices a e conside ed lowe compa ing wi h he enewable ene gy
p ices. To ensu e he ansi ion in o a comple e g een g ow h model, i is impo an o
ha e a de eloped inancial sys em ha leads o s ong incen i es o g een inancing and
ene gy e iciency, such as, o example, g een, social and sus ainable bond ma ke s. No
less impo an , i is wo hy o emphasize he impo ance o emissions ading sys ems as
impo an ins umen s o achie e a signi ican educ ion in CO2emissions.
O e all, conside ing he dummy a iables, i is concluded ha ecession in he mos
ele an economies leads o a mainly nega i e e ec on he a iables s udied, whe eas he
sho - e m Ki chin cycles p oduce a mos ly posi i e e ec on he same a iables. The e o e,
i is e i ied ha economies a e mo e likely o eac nega i ely o he economic ecessions
o he la ges economies han o inancial c ises.
5.2. Limi a ions and Fu u e Resea ch
This s udy is no wi hou limi a ions. Fi s ly, he pe iod o he sample should be
ex ended in u u e esea ch, in o de o inc ease he s ill limi ed knowledge abou he global
e ec s o he cu en pandemic c isis. Added o his is he limi ed numbe o coun ies
analyzed, which needs enla ging in u u e s udies. Secondly, he e is he limi a ion o no
being able o add o he a iables p oxies o ecycling ac i i ies and ci cula economy. This
limi a ion is due o lack o access o a ailable annual da a ha would allow us o expand
his analysis o a la ge se o ma e ials.
In o de o add ess he limi a ions men ioned abo e, u u e esea ch could make
an analysis o iden i y he esponse o he ma e ial supply and demand, in a ious pe -
o mance egimes, in ela ion o he beha io o economic- inancial a iables, including
mac oeconomic undamen als and indices o economies’ digi aliza ion and sophis ica ion.
Finally, i is also impo an o de o e u u e esea ch e o s o assessing he in luence o
ecycling ac i i ies and o he ci cula economy on he beha io o ca bonic p oduc i i y,
aking in o accoun he di e en s a es o economic ac i i y.
Au ho Con ibu ions:
Fo concep ualiza ion: J.L. and J.F.; me hodology: J.L. and J.F.; edac ion—
o iginal p epa a ion o he d a : J.L. and J.F.; edac ion— e ision and edi ion: J.L. and J.F.; iewing:
J.L. and J.F.; supe ision: J.L. All au ho s ha e ead and ag eed o he published e sion o he
manusc ip .
Funding:
This esea ch was unded by he p ojec EMaDeS—Ene gy, Ma e ial, and Sus ainable De-
elopmen EU/CCDRC/FEDER (B ussels/Coimb a, Cen al Region, Po ugal) 2017 o 2021|Cen al-
01-0145-FEDER-000017.
Ins i u ional Re iew Boa d S a emen : No applicable.
Da a A ailabili y S a emen : The da a can be made a ailable om he au ho s upon eques .
Acknowledgmen s:
The au ho s acknowledge he highly aluable commen s and sugges ions p o-
ided by he edi o s and e iewe s, which con ibu ed o he imp o emen in he cla i y, ocus,
con ibu ion, and scien i ic soundness o he cu en empi ical s udy.
Con lic s o In e es :
The au ho s decla e he e a e no con lic o in e es . The unde s had no ole
in he design o he s udy; in he collec ion, analyses, o in e p e a ion o da a; in he w i ing o he
manusc ip , o in he decision o publish he esul s.
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