The relationship between energy consumption and financial development: An empirical analysis for Middle East and North African (MENA) countries

In this study, the relationship between energy consumption and financial development in 19 Middle East and North African (MENA) countries (Bahrain, United Arab Emirates, Algeria, Djibouti, Morocco, Palestine, Egypt, Iraq, Iran, Qatar, Kuwait, Libya, Lebanon, Syria, Saudi Arabia, Tunisia, Türkiye, Oman, and Jordan,) is investigated. The data used in the study includes the annual data for the period 2001-2019. In the econometric model, domestic credit to private sector (% of GDP) and market capitalization of listed domestic companies (% of GDP) variables are taken as an indicator of financial development, and kg of oil equivalent per capita is taken to represent energy consumption. In addition, openness, that is, the ratio of exports and imports to GDP, and GDP per capita representing economic growth are included in the model. Panel data models were used to estimate the impact of financial development on energy use. Empirical results show that according to Huber, Eicker and White and Discroll and Kray estimators, when domestic credit to private sector (% of GDP) is taken as an indicator of financial development, increase in the domestic credit to private sector (% of GDP) increases energy consumption. Similarly, an increase in per capita income has been found to increase energy consumption. However, it has been revealed that the effect of the increase in national income per capita, taken as an indicator of economic growth, on energy consumption is higher than the effect of domestic credit to private sector, taken as an indicator of financial development, on energy consumption. According to Huber, Eicker and White, and Discroll and Kray estimators, when market capitalization of listed domestic companies is taken as an indicator of financial development, the capitalization rate does not have a statistically significant effect on energy consumption. However, according to the estimation results, it has been revealed that the variable of openness has no effect on energy consumption.