Economic growth and economic uncertainty: Evidence from panel granger causality tests

Economic uncertainty has become a persistent feature of the global macroeconomic environment, influencing investment decisions, financial conditions, and long-term growth prospects. Motivated by these concerns, this study investigates whether economic uncertainty causally affects economic growth across a broad group of economies. Using quarterly data for 28 developed and developing economies from 1995Q1 to 2025Q1, the analysis includes three complementary measures of uncertainty: the world uncertainty index, economic policy uncertainty, and an optimal economic uncertainty index, to ensure robustness across economic uncertainty indicators. To examine the causal relationships between economic growth and its determinants, the study employs panel Granger causality methods, namely the Dumitrescu-Hurlin and the bias-corrected methods. These methods are suitable for macroeconomic panels, as they consider dependence, parameter heterogeneity, and dynamic panel bias. The empirical results show that economic uncertainty consistently Granger-causes economic growth, with higher uncertainty exerting a negative and statistically significant effect. Past economic growth, interest rates, and exchange rates also exhibit causal influences on economic growth. Evidence of reverse causality further indicates feedback effects between growth, uncertainty, and macroeconomic conditions. The findings highlight that managing economic uncertainty through credible policies, stable macroeconomic frameworks, and clear communication is essential for maintaining macroeconomic stability and sustaining long-term economic growth.