Abstract
This study focuses on the role of institutional factors as well as financial development in renewable energy transition in the Middle East and North Africa (MENA) region over the period 1990–2018, using the autoregressive distributed lag (ARDL) pooled mean group (PMG) method. The investigation of long-run and short-run analysis confirms that institutional and political factors play a key role in promoting the transition to renewable energy and show that improving these factors can lead to decarbonization of the energy sector in the long run. Another important finding is that global financial development does not have a significant effect on the transition process in the long run, implying that the whole financial system needs a fundamental structural change to accelerate the substitution between polluting and clean energies. However, in the short term, the impact appears to be negative and significant, highlighting the inadequacy of financial institutions and financial markets in promoting the region’s sustainable path. Moreover, income drives the transition to renewable energy in both short and long terms. The causality results show that both financial development and institutional quality lead to renewable energy transition, while there is a bidirectional link between income and renewable energy. This study can provide a very useful recommendation to promote a clean transition in the MENA region.
Similar content being viewed by others
Data availability
All data is provided in full in the Results section of this manuscript.
References
Abbasi F, Riaz K (2016) CO2 emissions and financial development in an emerging economy: an augmented VAR approach. Energy Policy 90:102–114. https://doi.org/10.1016/j.enpol.2015.12.017
Abid M (2017) Does economic, financial and institutional developments matter for environmental quality? A comparative analysis of EU and MEA countries. J Environ Manage 188:183–194. https://doi.org/10.1016/j.jenvman.2016.12.007
Acheampong AO, Boateng E, Amponsah M, Dzator J (2021) Revisiting the economic growth–energy consumption nexus: does globalization matter? Energy Econo 102:105472. https://doi.org/10.1016/j.eneco.2021.105472
Aghahosseini A, Bogdanov D, Breyer C (2020) Towards sustainable development in the MENA region: analysing the feasibility of a 100% renewable electricity system in 2030. Energy Strategy Rev 28:100466. https://doi.org/10.1016/j.esr.2020.100466
Ali HS, Zeqiraj V, Lin WL, Law SH, Yusop Z, Bare UAA, Chin L (2019) Does quality institutions promote environmental quality? Environ Sci Pollut Res 26:10446–10456. https://doi.org/10.1007/s11356-019-04670-9
Alsagr N, Hemmen VS (2021) The impact of financial development and geopolitical risk on renewable energy consumption: evidence from emerging markets. Environ Sci Pollut Res 28:25906–25919. https://doi.org/10.1007/s11356-021-12447-2
Amri F (2017) Intercourse across economic growth, trade and renewable energy consumption in developing and developed countries. Renew Sust Energ Rev 69:527–534. https://doi.org/10.1016/j.rser.2016.11.230
Ankrah I, Lin B (2020) Renewable energy development in Ghana: beyond potentials and commitment. Energy 198:117356. https://doi.org/10.1016/j.energy.2020.117356
Apergis N, Payne JE (2010) Renewable energy consumption and economic growth: evidence from a panel of OECD countries. Energy Policy 38:656–660. https://doi.org/10.1016/j.enpol.2009.09.002
Apergis N, Payne JE (2012) Renewable and non-renewable energy consumption-growth nexus: evidence from a panel error correction model. Energy Econ 34:733–738. https://doi.org/10.1016/j.eneco.2011.04.007
Atalay Y, Biermann F, Kalfagianni A (2016) Adoption of renewable energy technologies in oil-rich countries: explaining policy variation in the Gulf Cooperation Council states. Renewable Energy 85:206–214. https://doi.org/10.1016/j.renene.2015.06.045
Baloch MA, Ozturk I, Bekun FV, Khan D (2021) Modeling the dynamic linkage between financial development, energy innovation, and environmental quality: does globalization matter? Bus. Strategy Environ 30:176–184. https://doi.org/10.1002/bse.2615
Bardi W, Hfaiedh MA (2021) Causal interaction between FDI, corruption and environmental quality in the MENA region. Economies 9:14. https://doi.org/10.3390/economies9010014
Belaid F, Elsayed AH, Omri A (2021) Key drivers of renewable energy deployment in the MENA region: empirical evidence using panel quantile regression. Struct Chang Econ Dyn 57:225–238. https://doi.org/10.1016/j.strueco.2021.03.011
Belaïd F, Youssef M (2017) Environmental degradation, renewable and non-renewable electricity consumption, and economic growth: assessing the evidence from Algeria. Energy Policy 102:277–287. https://doi.org/10.1016/j.enpol.2016.12.012
Bellakhal R, Ben Kheder S, Haffoudhi H (2019) Governance and renewable energy investment in MENA countries: how does trade matter? Energy Econ 84:104541. https://doi.org/10.1016/j.eneco.2019.104541
Ben Cheikh N, Ben Zaied Y (2021) A new look at carbon dioxide emissions in MENA countries. Clim. Change 166:27. https://doi.org/10.1007/s10584-021-03126-9
Ben Jebli M, Ben Youssef S (2015) The environmental Kuznets curve, economic growth, renewable and non-renewable energy, and trade in Tunisia. Renew Sust Energ Rev 47:173–185. https://doi.org/10.1016/j.rser.2015.02.049
Best R (2017) Switching towards coal or renewable energy? The effects of financial capital on energy transitions. Energy Econ 63:75–83. https://doi.org/10.1016/j.eneco.2017.01.019
Bhattacharya M, Paramati SR, Ozturk I, Bhattacharya S (2016) The effect of renewable energy consumption on economic growth: evidence from top 38 countries. Appl Energy 162:733–741. https://doi.org/10.1016/j.apenergy.2015.10.104
Bhutto AW, Bazmi AA, Zahedi G, Klemeš JJ (2014) A review of progress in renewable energy implementation in the Gulf Cooperation Council countries. J. Clean Prod Special Volume: PSE Asia for Cleaner Production 71:168–180. https://doi.org/10.1016/j.jclepro.2013.12.073
Bourcet C (2020) Empirical determinants of renewable energy deployment: a systematic literature review. Energy Econ 85:104563. https://doi.org/10.1016/j.eneco.2019.104563
Breusch TS, Pagan AR (1980) The Lagrange multiplier test and its applications to model specification in econometrics. Rev Econ Stud 47:239–253
Cadoret I, Padovano F (2016) The political drivers of renewable energies policies. Energy Econo 56:261–269. https://doi.org/10.1016/j.eneco.2016.03.003
Chang YC, Wang N (2017) Legal system for the development of marine renewable energy in China. Sust Energ Rev 75:192–196. https://doi.org/10.1016/j.rser.2016.10.063
Charfeddine L, Kahia M (2019) Impact of renewable energy consumption and financial development on CO2 emissions and economic growth in the MENA region: a panel vector autoregressive (PVAR) analysis. Renewable Energy 139:198–213. https://doi.org/10.1016/j.renene.2019.01.010
Da Silva PP, Cerqueira PA, Ogbe W (2018) Determinants of renewable energy growth in sub-Saharan Africa: evidence from panel ARDL. Energy 156:45–54. https://doi.org/10.1016/j.energy.2018.05.068
Dees P, VidicanAuktor G (2018) Renewable energy and economic growth in the MENA region: empirical evidence and policy implications. Middle East Dev J 10:225–247. https://doi.org/10.1080/17938120.2018.1520000
Dogan E (2015) The relationship between economic growth and electricity consumption from renewable and non-renewable sources: a study of Turkey. Renew Sust Energ Rev 52:534–546. https://doi.org/10.1016/j.rser.2015.07.130
Dumitrescu EI, Hurlin C (2012) Testing for Granger non-causality in heterogeneous panels. Econ Model 29:1450–1460. https://doi.org/10.1016/j.econmod.2012.02.014
Eren BM, Taspinar N, Gokmenoglu KK (2019) The impact of financial development and economic growth on renewable energy consumption: empirical analysis of India. Sci Total Environ 663:189–197. https://doi.org/10.1016/j.scitotenv.2019.01.323
Gokmenoglu KK, Taspinar N, Rahman MM (2021) Military expenditure, financial development and environmental degradation in Turkey: a comparison of CO2 emissions and ecological footprint. Int J Finance Econ 26:986–997. https://doi.org/10.1002/ijfe.1831
Gozgor G (2018) A new approach to the renewable energy-growth nexus: evidence from the USA. Environ Sci Pollut Res 25:16590–16600. https://doi.org/10.1007/s11356-018-1858-9
Im KS, Pesaran MH, Shin Y (2003) Testing for unit roots in heterogeneous panels. J Econom 115:53–74
IPCC (2014) Climate change 2014: synthesis report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change [Core Writing Team, R.K. Pachauri and L.A. Meyer (eds.)]. IPCC, Geneva, Switzerland https://www.ipcc.ch/site/assets/uploads/2018/02/SYR_AR5_FINAL_full.pdf,
IRENA (2018) Opportunities to accelerate national energy transitions through enhanced deployment of renewables (Report to the G20 Energy Transitions Working Group); International Renewable Energy Agency, Abu Dhabi.
IRENA (2019) Energy transformation middle east and north Africa. Global Renewables Outlook
Islam MdM, Irfan M, Shahbaz M, Vo XV (2022) Renewable and non-renewable energy consumption in Bangladesh: the relative influencing profiles of economic factors, urbanization, physical infrastructure and institutional quality. Renew Energy 184:1130–1149. https://doi.org/10.1016/j.renene.2021.12.020
Ito K (2017) CO2 emissions, renewable and non-renewable energy consumption, and economic growth: evidence from panel data for developing countries. Int Econ 151:1–6. https://doi.org/10.1016/j.inteco.2017.02.001
Ji Q, Zhang D (2019) How much does financial development contribute to renewable energy growth and upgrading of energy structure in China? Energy Policy 128:114–124. https://doi.org/10.1016/j.enpol.2018.12.047
Kahia M, Aïssa MSB, Lanouar C (2017) Renewable and non-renewable energy use - economic growth nexus. The case of MENA Net Oil Importing Countries 71:127–140. https://doi.org/10.1016/j.rser.2017.01.010
Kahia M, Ben Jebli M, Belloumi M (2019) Analysis of the impact of renewable energy consumption and economic growth on carbon dioxide emissions in 12 MENA countries. Clean Techn Environ Policy 21:871–885. https://doi.org/10.1007/s10098-019-01676-2
Khan S, Khan MK, Muhammad B (2021) Impact of financial development and energy consumption on environmental degradation in 184 countries using a dynamic panel model. Environ Sci Pollut Res 28:9542–9557. https://doi.org/10.1007/s11356-020-11239-4
Kim J, Park K (2016) Financial development and deployment of renewable energy technologies. Energy Econ 59:238–250. https://doi.org/10.1016/j.eneco.2016.08.012
Kim J, Park K (2018) Effect of the clean development mechanism on the deployment of renewable energy: less developed vs. well-developed financial markets. Energy Econ 75:1–13. https://doi.org/10.1016/j.eneco.2018.07.034
Lahiani A, Mefteh-Wali S, Shahbaz M, Vo XV (2021) Does financial development influence renewable energy consumption to achieve carbon neutrality in the USA? Energy Policy 158:112524. https://doi.org/10.1016/j.enpol.2021.112524
Le TH, Nguyen CP, Park D (2020) Financing renewable energy development: insights from 55 countries. Energy Res Soc Sci 68:101537. https://doi.org/10.1016/j.erss.2020.101537
Lei W, Liu L, Hafeez M, Sohail S (2021) Do economic policy uncertainty and financial development influence the renewable energy consumption levels in China? Environ Sci Pollut Res. https://doi.org/10.1007/s11356-021-16194-2
Levin A, Lin CF, Chu CSJ (2002) Unit root tests in panel data: asymptotic asymptotic and finite sample properties. J Econom 108:1–24
Lin B, Omoju OE, Okonkwo JU (2016) Factors influencing renewable electricity consumption in China. Renew Sust Energ Rev 55:687–696. https://doi.org/10.1016/j.rser.2015.11.003
Ma Y, Zhang T, Qian W, Wei D (2022) Financial development, demographic changes, and the growth of the non-hydro renewable energy industry—an empirical test based on R&D and financing costs. Renew Energy 185:217–229. https://doi.org/10.1016/j.renene.2021.12.059
Mahmood H, Tanveer M, Ahmad A.-R, Furqan M ( 2021) Rule of law and control of corruption in managing CO2 emissions issue in Pakistan https://mpra.ub.uni-muenchen.de/109250
Mehrara M, Rezaei S, Razi DH (2015) Determinants of renewable energy consumption among ECO countries; based on bayesian model averaging and weighted-average least square. Int Lett Soc Humanist Sci 54:96–109
Menegaki AN (2011) Growth and renewable energy in Europe: a random effect model with evidence for neutrality hypothesis. Energy Econ. 33(257):263. https://doi.org/10.1016/j.eneco.2010.10.004
Mongo M, Belaïd F, Ramdani B (2021) The effects of environmental innovations on CO2 emissions: empirical evidence from Europe. Environ Sci Policy 118:1–9. https://doi.org/10.1016/j.envsci.2020.12.004
Mrabet Z, Alsamara M, Mimouni K, Mnasri A (2021) Can human development and political stability improve environmental quality? New evidence from the MENA region. Econ Model 94:28–44. https://doi.org/10.1016/j.econmod.2020.09.021
Omri A, Belaïd F (2021) Does renewable energy modulate the negative effect of environmental issues on the socio-economic welfare? J Environ Manage 278:111483. https://doi.org/10.1016/j.jenvman.2020.111483
Pesaran MH (2007) A simple panel unit root test in the presence of cross-section dependence. J Appl Econom 22:265–312
Pesaran M.H (2004) General diagnostic tests for cross section dependence in panels. Work. Pap. 435 (CESifo).
Pesaran MH, Shin Y, Smith RP (1999) Pooled mean group estimation of dynamic heterogeneous panels. J Am Stat Assoc 94:621–634. https://doi.org/10.1080/01621459.1999.10474156
Poudineh R, Sen A, Fattouh B (2018) Advancing renewable energy in resource-rich economies of the MENA. Renewable Energy 123:135–149. https://doi.org/10.1016/j.renene.2018.02.015
Qamruzzaman M, Jianguo W (2020) The asymmetric relationship between financial development, trade openness, foreign capital flows, and renewable energy consumption: fresh evidence from panel NARDL investigation. Renewable Energy 159:827–842. https://doi.org/10.1016/j.renene.2020.06.069
Raza SA, Shah N, Qureshi MA, Qaiser S, Ali R, Ahmed F (2020) Non-linear threshold effect of financial development on renewable energy consumption: evidence from panel smooth transition regression approach. Environ Sci Pollut Res 27:32034–32047. https://doi.org/10.1007/s11356-020-09520-7
REN21 (2021) Renewables 2021 global status report (Paris: REN21 Secretariat). ISBN 978–3–948393–03–8
Sadorsky P (2009) Renewable energy consumption, CO2 emissions and oil prices in the G7 countries. Energy Economics 31:456–462. https://doi.org/10.1016/j.eneco.2008.12.010
Sadorsky P (2021) Wind energy for sustainable development: driving factors and future outlook. J Clean Prod 289:125779. https://doi.org/10.1016/j.jclepro.2020.125779
Saidi H, El Montasser G, Ajmi AN (2020) The role of institutions in the renewable energy-growth nexus in the MENA region: a panel cointegration approach. Environ Model Assess 25:259–276. https://doi.org/10.1007/s10666-019-09672-y
Salim RA, Rafiq S (2012) Why do some emerging economies proactively accelerate the adoption of renewable energy? Energy Econn 34:1051–1057. https://doi.org/10.1016/j.eneco.2011.08.015
Samour A, Baskaya MM, Tursoy T (2022) The impact of financial development and FDI on renewable energy in the UAE: a path towards sustainable development. Sustainability 14:1208. https://doi.org/10.3390/su14031208
Shahbaz M, Solarin SA, Mahmood H, Arouri M (2013) Does financial development reduce CO2 emissions in Malaysian economy? A time series analysis. Econ Model 35:145–152. https://doi.org/10.1016/j.econmod.2013.06.037
Shahbaz M, Topcu BA, Sarıgül SS, Vo XV (2021) The effect of financial development on renewable energy demand: the case of developing countries. Renewable Energy 178:1370–1380. https://doi.org/10.1016/j.renene.2021.06.121
Sovacool BK (2016) How long will it take? Conceptualizing the temporal dynamics of energy transitions. Energy Research & Social Science, Energy Transitions in Europe: Emerging Challenges, Innovative Approaches, and Possible Solutions 13:202–215. https://doi.org/10.1016/j.erss.2015.12.020
Svirydzenka K (2017) Introducing a new broad-based index of financial development. Available at: https://www.imf.org/en/Publications/WP/Issues/2016/12/31/Introducing-a-New-Broad-based-Index-of-Financial-Development-43621
Tiba S, Belaid F (2021) Modeling the nexus between sustainable development and renewable energy: the African perspectives. J Econ Surv 35:307–329. https://doi.org/10.1111/joes.12401
Tiwari AK, Nasreen S, Anwar MA (2022) Impact of equity market development on renewable energy consumption: do the role of FDI, trade openness and economic growth matter in Asian economies? J Clean Prod 334:130244. https://doi.org/10.1016/j.jclepro.2021.130244
Tugcu CT, Tiwari AK (2016) Does renewable and/or non-renewable energy consumption matter for total factor productivity (TFP) growth? Evidence from the BRICS. Renew Sust Energ Rev 65:610–616. https://doi.org/10.1016/j.rser.2016.07.016
Usman O, Rafindadi AA, Sarkodie SA (2021) Conflicts and ecological footprint in MENA countries: implications for sustainable terrestrial ecosystem. Environ Sci Pollut Res 28:59988–59999. https://doi.org/10.1007/s11356-021-14931-1
Uzar U (2020) Political economy of renewable energy: does institutional quality make a difference in renewable energy consumption? Renewable Energy 155:591–603. https://doi.org/10.1016/j.renene.2020.03.172
Westerlund J (2007) Testing for panel cointegration with multiple structural breaks. Oxford Bull Econ Stat 68:101–132. https://doi.org/10.1111/j.1468-0084.2006.00154.x
Wu L, Broadstock DC (2015) Does economic, financial and institutional development matter for renewable energy consumption? Evidence from emerging economies. Int. J. Econ. Policy Emerg. Econ. 8:20–39. https://doi.org/10.1504/IJEPEE.2015.068246
Author information
Authors and Affiliations
Contributions
Haifa Saadaoui: data collection, software, investigation, conceptualization, methodology, language editing, and revision.
Corresponding author
Ethics declarations
Ethics approval
Not applicable.
Consent to participate
Not applicable.
Consent for publication
Not applicable.
Conflict of interest
The author declares no competing interests.
Additional information
Responsible editor: Nicholas Apergis
Publisher's note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Saadaoui, H. The impact of financial development on renewable energy development in the MENA region: the role of institutional and political factors. Environ Sci Pollut Res 29, 39461–39472 (2022). https://doi.org/10.1007/s11356-022-18976-8
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11356-022-18976-8