The Impact of Financial Development, Urbanization and Renewable Energy Consumption on CO2 Emissions in MENA Countries

Abstract

This study aims to explore the influence of financial development, urbanization, and renewable energy consumption on CO2 emissions in MENA countries over 2011 to 2023 by fixed effects regression model. The results of this study indicate that the financial development is positively related to carbon emissions by financing investments in the carbon intensive industries, while renewable energy compensate fossil fuels in energy mix and reduce emissions.
Contrary to the urbanization exhibits a negative effect on emissions, indicating that better urban infrastructure and energy efficiency are related to lower carbon outputs. Foreign direct investments also mitigate emissions by the insertion of modern-day technologies, and higher economic complexity (expressed through trade openness and
gross fixed capital formation) are associated with greater number of emissions due to industrial activity. Because otherwise, it said MENA countries would need to support so-called sustainable urbanization; greater investments in renewable energy and financial development must be realigned with environmental goals to strike a balance between economic growth and climate mitigation.