The Impact of Green Finance on Environmental Performance in the MENA Region under the Moderating Role of Institutional Quality

The accelerating pace of climate change has emerged as one of the most tremendous challenges of the 21st century, threatening the stability of natural ecosystems and economic stability worldwide. Nowhere is this threat more acute than in the Middle East and North Africa (MENA) region. In response, green finance has emerged as a pivotal mechanism to mobilize investment towards sustainable development initiatives. However, the unresolved question is whether green finance is effective in enhancing environmental performance in the MENA region. In this milieu, this study examines the impact of green finance proxied by the ND Gain Index on environmental performance under the moderating effect of institutional quality across low-middle and high-income MENA countries by applying Pooled OLS, Fixed Effects, Random Effects, GMM, and Quantile Regression models to panel data from 2012 to 2023. The model controls for socio-economic variables, including urban population growth, industrialization, GDP per capita, and foreign direct (FDI) net inflows. In high-income MENA countries, the empirical findings revealed that green finance enhances environmental performance under the moderating role of control of corruption, while FDI net inflows and industrialization exhibit a positive correlation with CO₂ emissions. Conversely, in low-income MENA countries, green Finance, urban population growth deteriorate environmental performance. These findings underscore the importance of enhancing institutional quality and tailoring green finance strategies to the specific socio-economic contexts of MENA countries to maximize their effectiveness in reducing CO₂ emissions.