Revisiting the Role of Financial Development in Energy-Growth-Environment Nexus in Iraq

Abstract

While lots of empirical research studies have examined the relationship between energy, economic growth, and the environment, the existing literature has not explored the impact of financial development on the nexus between growth, energy, and the environment. Hence, the current study aims to assess the correlation between financial development, economic growth, and the energy-environment relationship in Iraq. The temporal scope of the study encompasses the period from 2000 to 2022.The study employs three distinct models to estimate the relationships between economic growth, environmental quality, and energy consumption. These models include Fully Modified Ordinary Least Square (FMOLS), Dynamic Ordinary Least Square (DOLS), and Canonical Cointegration Regression (CCR). Based on the findings, it can be observed that all three specifications demonstrate a noteworthy inverse relationship between financial development and both economic growth and energy consumption. There is a significant positive relationship between financial development and environmental degradation. The study concludes that the financial sector in Iraq exhibits insufficient development and efficiency, thereby hindering the promotion of economic growth and environmental quality. The study suggests implementing significant reforms within the financial sector in order to effectively harness its potential benefits in both economic and environmental domains.