Impact of renewable energy consumption and financial development on CO2 emissions and economic growth in the MENA region: A panel vector autoregressive (PVAR) analysis

Abstract

Unlike previous studies in the energy-environment literature, this study employed the panel vector autoregressive (PVAR) model that was developed by Love and Zicchino [1] to examine the impact of renewable energy and financial development on carbon dioxide (CO2) emissions and economic growth. Moreover, we used the impulse response function tool, which was developed in the same context, to better understand the reaction of the two main variables of interest, CO2 emissions and economic growth, aftershocks on renewable energy and financial development variables. Finally, the analysis was completed by the variance decomposition of all variables. These analyses were conducted for a 24 countries of the Middle East and North Africa (MENA) region from 1980 to 2015. Overall, the results show that both renewable energy consumption and financial development have a slight influence and can only slightly explain CO2 emissions and economic growth. These results indicate that both financial development and the renewable energy sectors in the MENA countries are still weak regarding making contributions to environmental quality improvements and economic growth. Several policies are proposed and discussed.