Conference Paper
CO2 Emissions and Financial Development: Does Geopolitical Risk Matter? Evidence from MENA Countries
No.
ERF32AC_133
Publisher
ERF
Date
May, 2026
Topic
Q4. Energy
G1. General Financial Markets
Q5. Environmental Economics
Climate change poses an escalating threat to global stability. The Middle East and North Africa (MENA) region is emerging as one of the most vulnerable economies due to a heavy reliance on fossil fuel industries. Against a climate of rising global carbon emissions and the region’s socio-political fragility, this article empirically investigates the complex triadic relationship between financial development, geopolitical risk, and CO2 emissions within this geopolitically vulnerable and oil-dependent region. This study addresses a critical gap in the literature by jointly exploring how geopolitical instability, ranging from armed conflicts to trade disputes, interacts with financial systems to shape environmental outcomes. Using the bootstrap panel causality approach developed by Kónya (2006) testing the Geopolitical Risk index and the CO2 emissions, we reveal that geopolitical risk significantly exacerbates environmental issues by disrupting supply chains, deterring green investment, and shifting national priorities away from long-term climate goals. The findings suggest that reducing CO2 emissions in the MENA region requires a coherent policy framework. Recommendations include integrating geopolitical risk assessments into financial decision-making strategies, promoting research and development (R&D) in new energy technologies, and enhancing international cooperation to ensure decarbonisation strategies remain resilient amid regional volatility.
Research Fellows
Essahbi Essaadi
Assistant Professor, University of Manouba, Tunisia