The Impact of Financial Development On The Clean Energy Transition In 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 Middle East and North Africa (MENA) region over the period 1990-2018 using the ARDL 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 shows 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 term. 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.


Introduction
In recent centuries, climate change and the massive exploitation of resources have become the focus of According to the latest report of the Renewable Energy Policy Network for the 21 st Century ( REN 21, 2021), energy demand is characterized by the dominance of fossil fuels as the main source of GHGs.
It is therefore clear that the transition to a low-carbon mode of production is necessary. More speci cally, decarbonizing the economy through the transition to clean energy is an attractive option. This strategy can help mitigate the negative effects of climate change by reducing carbon emissions (CO 2 ) into the atmosphere. It also enables to strength economic development as it helps to protect the economy from energy poverty and improve access to electricity (Sardorsky, 2021).
The growing global interest in the energy transition has been exacerbated by international negotiations on climate change. The 2015 Paris Agreement was a notable point in these international consensuses.
Article 2 of the universal legal climate agreement (adopted by the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change COP 21) emphasizes the urgency of reducing global warming to "well below 2°C", a 4°C decrease from the current situation. Achieving this global goal will require signi cant international efforts.
In general, the energy transition is considered as a gradual substitution between two types of energy, where the cumulative effect of some measures led to important results after a certain time. Therefore, the energy system to be introduced cannot be radically and suddenly transformed. Energy transitions take time, sometimes centuries, as shown by the experience of switching from wood to coal or from coal to oil.
The slow pace of the transition process is also justi ed by the scale and complexity involved in major conversions, and by the tendency for new systems to face "lock-in" or "path dependency" from existing systems (Sovacool, 2016).
The report of International Renewable Energy Agency (IRENA, 2018) also states that even if an energy transition is technically feasible and economically bene cial, it will not automatically be realized. Therefore, there is an urgent need for policymakers to take action to move from the current energy system to a more sustainable path.
Although developed countries are leading the way in converting their energy systems to a sustainable development path, this strategy has spread around the world. Developing countries have also joined this initiative. In practice, the speed of the energy transition for these countries is leisurely and timeconsuming. This is not surprising as this time delay mainly due to the lack of nancial resources to promote innovation, persistent corruption, political instability in some countries and also easy access to some types of fossil fuels.
This situation, characteristic of developing countries, can be illustrated by the example of the Middle East and North Africa (MENA) region. This group of countries is considered a promising region for the energy transition, as it has signi cant renewable energy potential (Aghahosseini et al., 2020). This is an advantage in addressing the ongoing challenges and is also a means of protecting against GHG emissions (Bhutto et al., 2014). However, according to IRENA (2019), renewable energy accounts for only 6% of the installed electricity capacity in the region.
More speci cally, the MENA region is rich in fossil fuels and is considered the world's largest supplier of oil and gas (Saidi et al.2020). For oil importing-countries in this region, reducing oil imports is an important issue to cope with threats associated with price volatility, as the instability of oil prices negatively affects their economic performance. Therefore, the transition to clean energy will reduce the oil dependence of non-exporting countries (Atalay et al., 2016). It can also provide an alternative source of electricity, especially as MENA countries have experienced rapid population growth, increasing demand for electricity and limited investment in new generation capacity in recent years (Saidi et al., 2020). However, the MENA region has been witnessed a political movement referred to as "Arab Spring". These riots refer to a series of anti-government protests, pro-democracy uprisings and armed rebellions against the existing political regimes in several MENA countries. It is worth noting that these movements began in Tunisia in early 2011 and quickly spread to other Arab countries such as Egypt, Libya, Syria, etc. The results of these revolutions have led to political changes. In Tunisia, for example, there was a change of government in 2014, the creation of a new legal framework and the introduction of new policies and new regulations.
It is important to note that these movements still have an impact on the overall economic situation and affecting institutional quality in MENA countries.
As a result, efforts to achieve renewable energy development goals may come derived in this context. For instance, Mrabet et al. (2021) point out that maintaining political stability is crucial to avoid delays in achieving environmental goals in this region.
The main objective of this article is to analyze the capacity of MENA countries to achieve a low-carbon energy transition and to examine the drivers of this transition. In particular, we focus on the importance and role of good governance, institutional quality and the role of the global nancial system in this transition process. To this end, we use the ARDL panel PMG and the Pairwise Dumitrescu-Hurlin panel causality tests for the period 1990 to 2018 for 9 countries in the MENA region.
We strongly believe that the MENA region is an interesting case study to investigate the determinants of the transition to renewable energy. First, this region is intensifying its efforts towards of sustainable development. Indeed, the application of sustainable development is becoming increasingly urgent (Ben Cheikh, and Ben Zaied, 2021). The need to apply a sustainable economic model based on environmental protection and clean energy is a strategic objective for this region.
Second, this region has made signi cant efforts to advance renewable energy. For instance, the IRENA (2019) classi es countries such as Morocco and others as making great efforts to transition to renewable energy despite growing institutional instability.
Third, understanding the relationship between corruption, law and order, bureaucratic quality, democratic accountability, stability of government and green energy is crucial in MENA countries characterized by a high degradations in political and institutional factors. analyzing the impact of domestic credit to the private sector, this study points to a general index of nancial development. This index includes nine indicators that summarize the level of development of nancial institutions and markets in terms of depth, access and e ciency. This provides a more reliable assessment of the relationship between nancial development and the renewable energy transition.
The rest of the article is organized as follows: Section 2 contains the literature review. Section 3 presents the model speci cation and data description. Results and discussion are highlighted in Section 4; nally, conclusions and policy implications are drawn in Section 5.

Literature Review
The determinants of renewable energy consumption have fueled the debate in the empirical literature as they provide relevant policy recommendations that offer viable solutions to environmental problems and achieve the goals set out in the Paris Climate Agreement (Bourcet, 2020). It should be noted that the causal links between renewable energy and economic growth have been well explained in the economic literature. In fact, there are four relevant hypotheses that design the possible links. The rst hypothesis is the growth hypothesis, which assumes a unidirectional cause-effect relationship between renewable energy and economic growth. This explains that the integration of renewable energies into the production process as a complementary factor to labor and capital can directly and indirectly in uences economic growth. This hypothesis is supported by several works such as Dogan (2015), and Gozgor (2018).
The second hypothesis is the conservation hypothesis, which proves the existence of unidirectional causality between economic growth and renewable energy consumption. This means that economic growth has a direct effect on renewable energy consumption. This link may even be positive, i.e. economic growth may promote the renewable energy development. On the other hand, it is possible that the effect is negative due to a lack of developed infrastructure or good resource management, a growing economy encounters ine ciencies, and a decrease in demand for goods and services, including energy consumption. This hypothesis is tested in the following paper: Sardosky (2009), and Tugcu and Tiwari The last assumption supports neutrality between economic growth and renewable energy. This implies that the consumption of renewable energy has no effect on economic growth, and moves towards it. In other words, energy policy (expansionary or conservative) has no impact on economic growth, and this is equivalent for economic policy. In fact, the relationship between economic growth and renewable energy is critical, however there is a growing body of empirical work that focuses on the respective roles of institutional quality, good governance, and nancial development in accelerating the clean energy transition. Furthermore, the role of nancial development in the diffusion of the renewable energies has triggered a current debate, which stresses the importance of reformulating this system in order to nance sustainable development.
In general, investments in renewable energy projects are associated with high costs related to high startup costs, long-term debt repayment costs, and ongoing investment costs for research and development (Eren et al., 2019). The role of the nancial system in the renewable energy sector is to facilitate lending.
Therefore, the growth of renewable energy projects can be associated with the nancial development of the country. Kim and Park (2018) show that the use of the Clean Development Mechanism can play an important role in improving access to nancing for renewable energy projects.
They empirically investigated the link between the clean development mechanisms on renewable energy projects based on panel data for 64 countries with different levels of nancial development.
They noted the positive effect of these mechanisms on renewable energy deployment in countries with a less developed domestic nancial market. They explained this by the di culties in nancing renewable energy projects through debt or equities, especially in less developed nancial markets.
According to Best (2017), nancial capital stimulates the transition to more capital-intensive types of energy, in the case of renewable energy. Best (2017) draws on a sample of 137 countries over the period 1998-2013, and the results reveal that the transition to more capital-intensive power generation systems is more accessible to countries with large nancial capital Empirical studies on the relationships between nancial development and renewable energy offers an inconclusive results. result for the same case study. They even pointed out that nancial development is crucial factor for the growth of renewable energy in China. It contributes 42.42% to the growth uctuation of renewable energy, knowing that the capital market is the most important factor in this context. Le et al. (2020) also studied this relationship using panel data from 55 countries for the period between 2005 and 2014. The conclusion of this study is similar to that of Kim and Park (2016). In particular, they showed that nancial development is substantial for the development of the renewable energy sector in high-income countries. In contrast, this impact seems to be insigni cant for low and middle income countries.
On the other hand, Raza  In addition, Uzar (2020) analyzed the relationship between renewable energy and institutional quality institutional quality in 38 countries from 1990 to 2015 using the method ARDL-PMG. Economic growth and CO 2 emissions are included as control variables in the model. The results of this study suggest that institutional quality positively affects renewable energy consumption in the long run. Moreover, CO 2 emissions are a positive and signi cant determinant of renewable energy consumption. However, economic growth has a negative impact on renewable energy. In this context, institutional quality is an important strategic choice to promote renewable energy use and solve environmental problems.

Data description
This empirical analysis is based on annual series covering the period from 1990 to 2018 for 9 MENA countries (Tunisia, Morocco, Algeria, Iran, Turkey, Lebanon, Sudan, Egypt and Jordan). The selection is limited due to the unavailability of some data. The dataset includes the variables of renewable energy consumption, institutional quality, economic growth, and nancial development.  Table 1 illustrates the descriptive statistics for the natural logarithm form of institutional quality, nancial development income and renewable energy in MENA countries from 1990 to 2018. All variables used in our model are negatively skewed except for income, meaning that they have longer right tails than a normal distribution. Moreover, all variables have a Platykurich distribution, as their kurtosis is lower than that of a normal distribution. Finally, the Jarque-Bera test for normality shows that only income and institutional quality are normally distributed.

Model Speci cation
In line with the recent literature on the determinants of renewable energy, we develop an empirical model (equation 1) that takes into account the impact of nancial development (FD), institutional quality (IQ), and economic growth (GDP) on renewable energy consumption (RE).
By applying the logarithmic form, the equation (1) can be designated as follows: where i is the country-speci c dimension (i.=9 countries), and t is the estimated time periods (t = 1990, 1991, ..., 2018). μ t represents the error term that is identically and independently distributed (iiid ~N(µ, σ)).
In this study, we use the ARDL-PMG proposed by Pesaran et al. (1999)  Where, X represents the vector independent variables.
Then equation 3 can be written as follow:

Preliminary tests
The rst step in our analysis is to examine cross-country dependence. Indeed, many studies have ignored this crucial step, which may lead to biased results. For this reason, we test for cross-country dependence in our study using the Breusch-Pagan LM (1980) and the Pesaran CD (2004). The use of these two tests is preferred in panel data models for cross-sectional dependence.  The next step is to analyze the order of integration. For this we use the rst and second generation stationarity tests. Table 3 illustrates the results of the stationarity tests for the rst and second generation. We use the rst generation tests: the unit root tests of Levin et al. (2002) and Im et al. (2003).
The null hypothesis of these two tests is that the series have a unit root. The results of the previous two tests yielded the same results. More speci cally, the results of the LLC unit root test and IPS indicate that the null hypothesis for LnIQ and LnGDP is rejected at the level. However, when these tests are applied at the rst difference level, the null hypothesis of non-stationarity is rejected for all models. Therefore, the rst generation tests show that lnRE and lnFD are I(1) and lnGDP and LnIQ are I(0). In our case, the presence of cross-sectional dependence in the panel data recommends the use of second generation panel unit root tests. Accordingly, the results obtained with the rst generation tests can be considered unreliable. Therefore, we use the second generation CADF unit root test developed by Pesaran (2007). The results of the CADF test prove the same order of integration.
The stationarity results show that all variables are integrated in order or rst difference, and none of them is I (2), which allows us to use the ARDL model. The results of the cointegration tests are reported in Table 4. The Pt and Pa tests reject the null hypothesis of no cointegration at the 1% signi cance level. Thus, our result con rms that there is cointegration in at least one unit. We use the Pooled Mean Group (PMG) to estimate the long-run and short-run equilibrium between nancial development, institutional quality, income, and renewable energy consumption. Table 5 illustrates the results for the PMG model. Table 5: the ARDL analysis Note : *,**,*** show signi cance level of respectively 1%, 5% , and 10%.

Long-run result
In the long run, the results show that institutional quality has a positive and signi cant impact on the transition to renewable energy. In other words, a 1% increase in institutional quality leads to a 0.098% increase in renewable energy diffusion in MENA countries at a 1% signi cance level.
Our ndings support the argument that the improving in institutional and political factors can console the transition to renewable energy. For example, the development of democracy, control of corruption, political stability, the increase of bureaucratic quality and the establishment of sound laws lead to the consideration of the social demand for an environmental quality and prevent projects with negative environmental impacts. These concerns increase the consumption of renewable energy by motivating the spread of environmentally friendly energy consumption.
According to Mrabet et al. (2021), political stability is an essential condition for sustainable development in the MENA region. Moreover, the increase of con icts in this region promotes environmental degradation (Usman et al., 2021). Bardi  The second result of this study states that nancial development has a negative but not signi cant effect on renewable energy consumption. Thus, our results suggest that overall nancial sector development has no real impact on the promotion of clean energy in the MENA region.
The second result of this study states that nancial development has a negative but not signi cant impact on renewable energy consumption. Thus, our result suggests that overall nancial sector development has no real impact on the promotion of clean energy in the MENA region.
This result is not surprising given that the MENA region is characterized by a limited nancial system in some countries. Indeed, the degree of progress of these systems varies from country to country.
Charfedine and Kahia (2019) pointed out that the contribution of nancial institutions to improving environmental quality through a small decrease in CO2 emissions in MENA countries is very low. They explain this result by the inability of the nancial sector to improve the renewable energy sector, which is in line with our present result. Thus, this region must Therefore, make efforts to regulate the nancial system to have an impact on green energy and green investments. In terms of economic growth, the results show that income has a positive impact on renewable energy consumption. Therefore, an increase in income will stimulate the transition to renewable energy in MENA countries. A 1% increase in income led to 0.343% improvement in renewable energy transition at 1%

Short -term result
The short-term dynamics can provide the necessary information on how adjustments are made between the different variables in the model to restore long-term equilibrium.
It was found that the error correction term (ECT) is signi cant and negative, indicating the existence of a long-run relationship between the variables. This indicates a rapid adjustment towards equilibrium. The rate at which the model adjusts to the long-run equilibrium is 0.092. Thus, the model corrects its state of disequilibrium at an adjustment rate of 0.092 per year when an exogenous shock is applied to the system Table 5 also provides the results of the short run analysis. It is observed that institutional quality in the MENA countries has a non-signi cant effect on green energy. In contrast, nancial development hampers the transition to renewable energy with a signi cant effect (-0.171).
Moreover, the results show that income has a positive and signi cant effect on renewable energy (0.122). The results of the panel causality test are reported in Table 6. The results suggest that there is a unidirectional causality running from institutional quality to renewable energy. This nding implies that renewable energy consumption is in uenced by institutional quality and political factors. This nding is consistent with that of Uzar (2020) who nds unidirectional causality between institutional quality and renewable energy.

Causality test
However, our result is inconsistent with Saidi et al. (2019) who suggest that there is no causal relationship between renewable energy and ve factors of institutional quality in the MENA region.
The results also show that nancial development causes the transition to renewable energy at a signi cance level of 1%. This implies that nancial development can affect the transition to renewable energy, but not vice versa. Our results are in line with Lin et al. (2016) in China, who found evidence for the unidirectional hypothesis from nancial development to renewable electricity.
As far as the relationship renewable energy and income is concerned, the results suggest that there is a The results show that both institutional quality and nancial development affect income in the MENA region and vice versa. Finally, we can nd a unidirectional causality running from nancial development to institutional quality.

Conclusions And Policy Implications
This paper examines the dynamic impact of three fundamental variables affecting the clean energy transition in the case of MENA countries, namely institutional and political factors, nancial development, and income. The ARDL panel framework and Pairwise Dumitrescu-Hurlin panel causality tests were employed to analyze the long and short run cointegration results and causality links, in our model, respectively, using panel data for the period 1990-2018. Our study reveals several interesting results and provides clear implications for policy makers in the transition process to green energy.
First, the study found that institutional quality increases the share of renewable energy in the long run, but is insigni cant in the short run. It follows that improving institutional quality and the political factors will enable MENA countries to reap to the bene ts of the renewable energy sector in the long run. Moreover, the causality test con rms the previous result, it imply that institutional quality causes the renewable energy transition. This region needs signi cant institutional reforms that will bring about real and consistent changes in the ght against corruption. Therefore, implementing anti-corruption measures, reducing the power of lobbyists, improving political stability, reducing bureaucracy, improving democratic quality, and protecting property rights are crucial to promoting clean energy investment and facilitating substitution between polluting and clean energy in MENA countries.
Second, regarding nancial development, our results have shown that the overall index of nancial development has negative impact on the diffusion of renewable energy in the short run. However, in the long run, nancial development demonstrates a non-signi cant in uence on clean energy. This result is in contrast to Belaid et al. (2021) in the context of the MENA region, who suggest that credit to private as an indicator of nancial development boosts the transition to renewable energy.
Our result shows that the nancial system as a whole does not facilitate the clean transition. This means that the nancial system is still not structured well enough to incentivize investors in green projects. It still allows for the development of environmentally damaging projects. This result provides a clear idea for policy makers in this region to introduce new nancial mechanisms to facilitate the nancing of modern projects, especially environmentally friendly projects. As Kim and Park (2018) have shown, the nondeveloped nancial system needs to introduce clean nancing mechanisms to promote substitution between renewable and non-renewable energy. Moreover, the causality results reported evidence suggesting that nancial development causes renewable energy consumption.
Policymakers in the MENA region need to implement nancial, monetary, and environmental policies through legislation to encourage the development of nancial systems to support clean energy investments. In this regard, governments in these countries should provide incentives to support the establishment of nancial institutions that meet regional and national sustainability criteria. In particular, it is important that the policymakers encourages the creation of green funds.
Third, income was found to boost renewable energy consumption in MENA countries in both the short and long term. The improvement in economic activities can increase the demand for renewable energy.
The causality analysis found that there is a bidirectional causal relationship between renewable energy and economic growth. This hypothesis states that economic growth encourages the use of renewable energy. Indeed, higher economic growth generates funds for renewable energy investment, and similar strong clean energy penetration promotes economic growth. Thus, the MENA region needs to implement effective strategies to promote the transition to renewable energy in order to harness its clean energy potential. These strategies are based on strengthening energy e ciency strategies and increasing R&D spending on renewable energy technologies.
Future research also needs to focus on the role of technological innovation and ICT factors to explore their potential impact on decarbonizing the economy in the MENA region.

Declarations
Funding: Not applicable Con icts of interest/Competing interests: Not applicable Availability of data and materials: All data is provided in full in the results section of this manuscript.
Ethics approval: Not applicable Consent to participate: Not applicable