Financial inclusion, economic growth, and environmental quality in the MENA region: What role does institution quality play?

Abstract

AbstractThis paper aims to check whether growth and the environment benefit from a more inclusive financial system. It also checks the moderating role of institutional quality (IQ) in the growth‐environment relationship. It uses a sample of 12 Middle East and North Africa (MENA) countries from 2004 to 2021 and performs the seemingly unrelated regression (SUR) model. The findings indicate that financial inclusion (FI) significantly increases the level of CO2 emissions. Hence, a more inclusive financial system deteriorates the quality of the environment in the MENA region. However, FI does not exert any significant effect on the level of growth. Furthermore, we found that the interaction between FI and IQ increases growth and improves the quality of the environment. This interactional effect is more apparent when the dependent variable is environment quality rather than growth. The results of this paper have substantial implications. Policymakers of this region should improve their IQ to mitigate the negative effects of FI and to spur growth and preserve the environment. When FI is aligned with environmentally conscious policies and practices, it can promote economic development while also contributing to a healthier planet and a more equitable society.