The Impact of Financial Development On The Clean Energy Transition In MENA Region: The Role of Institutional And Political Factors.

Abstract

This study focuses on the role of institutional factors as well as financial development in renewable energy transition in Middle East and North Africa (MENA) region over the period 1990-2018 using the ARDL 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 shows 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 term. 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.

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“…Increased diversification of renewable resources could result in averting climate change, lowering energy inadequacy, expanding energy supply, and decreasing reliance on fossil fuel industries (Bai et al 2022;Belaïd & Zrelli, 2019). Clean or renewable energies reached their maximum generation capacity in 2019, exceeding 200 gigawatts (REN21, 2020), while fossil fuels remain dominant in the global energy mix, providing 81% of the world's primary energy (Chien, 2022a;Saadaoui, 2021;Sadiq et al 2022d).…”