Exploring the dynamic interaction between geopolitical risks and lithium prices: A time-varying analysis

Within the process of energy transition, lithium has emerged as a critical strategic resource, experiencing an unprecedented price surge. This paper aims to investigate the interplay between the international geopolitical landscape and the lithium market, specifically examining the potential politicisation of lithium. We utilize the bootstrap sub-sample method to evaluate the correlation between geopolitical risks (GPR) and lithium price (LP). The results demonstrate a two-way causality extends across diverse sub-samples, highlighting the intricate link between GPR and LP. Furthermore, we observe a dynamic interaction between GPR and LP, characterized by time-varying directional influences. At the beginning, a negative correlation between GPR and LP is identified, challenging the Intertemporal Capital Asset Pricing Model's predictions of their concurrent movement. Notably, in 2022, a positive influence from GPR on LP emerges, signaling an emerging political dimension within lithium markets. In the context of energy transition and geopolitical uncertainty, our findings emphasize the importance for policymakers and the public to consider diverse technological alternatives to reduce lithium dependency.