Spillover Effects of Financial Development on Renewable Energy Deployment and Carbon Neutrality: Does GCC Institutional Quality Play a Moderating Role?

When viewed through the lens of sustainable ecology, the importance of financial sustainability increases. Consequently, this thesis investigates the influence of financial development on carbon emissions and renewable energy in Gulf Cooperation Council (GCC) nations during the period from 2005 to 2020. In addition to controlling for economic growth, technological innovation (mobile subscription), trade openness, and service value added, this study modifies the relationship by considering institutional quality (including regulation quality, rule of law, control of corruption, voice and accountability, and political stability). In contrast, the quantile-on-quantile regression method was employed for the investigation, whereas the fixed effect ordinary least squares (OLS) and Driscoll Kraay OLS methods were utilized as robustness checks. From model 1 where renewable energy is the dependent variable, it was observed that, there was a positively significant relationship between financial development, urbanization, economic growth, trade openness, service value added as well as institutional quality indicators (governance indicators) with the dependent variable (renewable energy development) while technology innovation (mobile subscription) had a negative connection with the dependent variable (renewable energy). Nevertheless, it was observed from the Model 2 where carbon emission is the dependent variable, there was a positive connection between financial development, technology innovation (Mobile subscription), and service value added with carbon emission. Moreover, Urbanization, economic growth, trade openness and institutional iv quality indicators (governance indicators) had a negative connection with the dependent variable (carbon emission). This result suggests that additional investments in renewable energy enterprises serve as an intermediary for the liquidity of banks in the countries under investigation. Additionally, this research contributes to the existing body of knowledge by conducting a comparative analysis of the financial development, specifically the capital adequacy of banks, in GCC countries that are frontrunners in climate finance. It emphasizes the significance of bank capital adequacy in bolstering environmental legislation and encouraging investments in renewable energy.