Does Financial Development Promote Environmental Sustainability? Evidence from the MENA Region Using Panel Data Analysis

Abstract

The purpose of this study is to examine whether financial development can promote environmental sustainability in the MENA region. In particular, the study investigates the potential of green finance mechanisms as channels through which financial systems may contribute to ecological preservation and reduced environmental degradation. It also assesses the current state of green finance adoption and the broader institutional conditions that shape its effectiveness. To achieve the set of research objectives, four Pooled OLS (Panel Regression) Analysis have been conducted for assessing the impact of financial development under the adoption of green policy trends and institutional quality on the environmental degradation- through its four proxies- in the MENA region, since saving the ecological system is one of the major requirements needed for achieving economic sustainability. Nine countries in the MENA region have been incorporated in the analysis; namely Egypt- Israel- Jordon- Lebanon- Saudi Arabia-Turkey- Qatar- Algeria- and UAE., with the variables throughout the period from 1999 to 2021. The dataset includes various metrics of environmental deterioration and financial development, as well as a thorough set of control variables to account for cofounding influences. The key findings indicate that financial development indicators—namely, private sector credit as a percentage of  () and  net inflows () ()—exhibit a statistically significant negative relationship with environmental degradation, as measured by carbon dioxide emissions, natural resource depletion, greenhouse gas emissions, and energy use.