Abstract:
The Relationship between Financial development and Economic growth is intrinsic. It has been shown in Literature that Economic growth leads to financial development and vice versa, however, a more interesting relation that is being discussed between environmental scientists, economists and policy makers is that of Financial development and Energy consumption, in specific renewable energy consumption. We used a pooled mean group (PMG) panel nonlinear autoregressive distributed lags (NARDL) model to investigate the influence of uncertainty and financial development on renewable energy consumption in 18 MENA countries (divided into importing and exporting countires with 9 countries for each) from 1990-2020. The model takes advantage of using the broad based financial development measure developed by Svirydzenka (2016) which compresses the various elements of financial development into an index that comprises both financial markets and financial institutions into 3 distinct themes namely; (access, depth and efficiency). In the Long run, results show that a positive shock to uncertainty leads to a negative effect in renewable energy consumption in both importing and exporting countries, however a negative shock to uncertainty negatively affects renewable consumption in exporting countries without having any effect on oil importing countries. Results also show that Financial development negatively affects renewable energy consumption in oil importing countries while having no effect in oil exporting countries. In the short run, a positive shock to uncertainty has a positive and significant effect on renewable consumption in oil importing countries but no effect in oil exporting countries, whereas a negative shock has no effect in both. The results also show that financial development has a significant positive effect in importing countries but no effect in exporting countries. Moreover, we employed the Pairwise Dumitrescu–Hurlin panel causality tests to study the existence and direction of causality among variables. The causality test results display that uncertainty has a unidirectional causality with renewable energy consumption in both oil importing and exporting countries, while financial development has a bidirectional causality in oil importing countries and no causality in oil exporting countries. Finally, a DOLS model was employed as a robustness test to account for omitted variables.
