Dynamic Effects of Material Production and Environmental Sustainability on Economic Vitality Indicators: A Panel VAR Approach

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 wi h ega d o ju isdic ional claims in published maps and ins i u ional a il- ia ions. 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 condi ions o he C ea i e Commons 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. Re e ences Ab igo, Michael R. M., and Inessa Lo e. 2016. Es ima ion o Panel Vec o Au o eg ession in S a a. S a a Jou nal 16: 778–804. 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