Work

The Impact of Economic Policy Uncertainty on Firm Markups and Business Sustainability: The Moderating Effect of Irreversible Investment and Innovation

Year: 2025

Type: article

Abstract: Incorporating economic policy uncertainty into the Melitz and Ottaviano theoretical model, this study systematically examines the impact of economic policy uncertainty on firm markups, contributing to our understanding of how macroeconomic conditions affect business sustainability. The results reveal a significant negative relationship between economic policy uncertainty and firm markups, with particularly adverse effects observed in labor-intensive industries, smaller firms, and export-driven companies. As investment irreversibility increases, so does the detrimental impact of economic policy uncertainty on business markups. Importantly, it is discovered that innovation efforts can mitigate these negative effects, promoting sustainable business practices under high policy uncertainty. This research extends the mechanism through which EPU affects markups and highlights the critical roles of investment irreversibility and innovation behavior as moderators. By exploring these dynamics, our findings contribute to the broader discourse on sustainability by identifying strategies for enhancing corporate resilience and competitiveness amidst economic uncertainties.

Source: Sustainability

DOI: 10.3390/su17114996

Authors: Xingqun Xue, Xinyu Zhou, Xiaofeng Zhang, Xinying Yang

Institution: Dalian University

Language: English

Topic: Market Dynamics and Volatility

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: gold

Estimated APC paid: $2,896