Assessing the environmental impact of institutional quality at aggregate and disaggregate levels: The role of renewable and non-renewable energy consumption and trade in MENA countries

Combating climate change and reducing CO2 emissions are essential for achieving the Sustainable Development Goals within a sustainable development framework. Various factors, such as institutional quality, affect environmental quality, and quantifying this linkage can lead to appropriate policy-making aimed at reducing pollution. The present study provides a comprehensive analysis of the impact of institutional quality on CO2 emissions in the Middle East and North Africa (MENA) region at both the aggregate (institutional quality) and disaggregate levels (corruption control, government effectiveness, political stability, violence and terrorism, regulatory quality, rule of law, voice, and accountability). This study analyzes data from 1996 to 2018 using Driscoll-Kraay and Newey-West standard error approaches to assess the impact of various factors on environmental quality. The findings reveal that GDP, non-renewable energy consumption, and trade activities have a significant negative effect on the environment. In contrast, oil prices, renewable energy, and foreign direct investment (FDI) help reduce CO2 emissions in the long run. Institutional quality and its other five indices, except for political stability and the absence of violence/terrorism, are found to contribute to the reduction of CO2 emissions in the region. Furthermore, the Dumitrescu and Hurlin Granger non-causality model reveals bidirectional causal relationships between GDP, renewable and non-renewable energies, trade, FDI, and institutional quality with CO2 emissions. Reducing emissions in the MENA region can be achieved by promoting green economic growth, developing renewable energy and energy efficiency industries, investing in low-carbon infrastructure, and directing FDI toward sustainable projects.