Green growth in the MENA region: How natural resource rents and financial development shape resource-rich and resource-poor economies?

This study examines the intricate relationship between natural resource rents, financial development, and green growth in the MENA region, with a specific focus on the structural heterogeneity between resource-rich and resource-poor economies. Using panel data covering 11 MENA countries from 2010 to 2022, the study examines how dependence on natural resources interacts with the depth of financial systems to influence trajectories of sustainable development. By applying a DFE-Panel ARDL, we found that (i) for the full sample, total natural resources rents significantly decrease green growth in the long run and short run. However, this relationship differs across the different types of natural resources. (ii) In the short run, we also found that natural resources rent is negatively and significantly associated with the level of green growth in resource-rich countries, while there is no significant effect in resource-poor countries. (iii) The opposite results were found when splitting the full sample into countries with high renewable resource rates and countries with largely exhaustible resources. Only in the short run, the effect of total natural resources rents is positive and significant for the first group of countries, while it is negative and significant for the second group of countries. (iv) The effect of financial development on green growth remains positive and significant for the full sample in the short run. However, it differs across the sub-classification of countries. The results carry important policy implications for MENA governments seeking to reconcile resource dependence with the urgent need for green transition strategies.