The Impact of Financial Development and Institutional Quality on Environmental Conditions: Evidence from the MENA Region

Ali Awdeh ()

Review of Middle East Economics and Finance, 2022, vol. 18, issue 2, 81-105

Abstract: The literature on the association between financial development and environment quality covers many dimensions. Nonetheless, the role of governance and institutional quality in this relationship has been highlighted moderately. Consequently, this research aims at extending the existing literature on the impact of financial development on CO2 emission, by integrating the role of institutional quality in the financial development-carbon emission nexus. By adopting a panel dataset of 20 MENA countries between 2002 and 2018 and using dynamic GMM models, the study examines firstly the impact of institutional quality on carbon emissions and revealed the important role of government effectiveness and quality of regulation in preserving environment quality. Furthermore, the paper tests how the combination of financial development and institutional quality can change the dynamic of their separate control ability on pollution. The results show indeed that their impact on CO2 emissions is amplified and changes from non-Granger cause type to Granger cause type.

Keywords: CO2 emissions; financial development; institutional quality; dynamic GMM model; MENA region (search for similar items in EconPapers)
JEL-codes: F36 G28 O43 Q56 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1515/rmeef-2022-0006

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