The impact of financial development on renewable energy development in the MENA region: the role of institutional and political factors

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.