Testing the moderating role of regulatory quality in the relationship between financial institutions’ depth, access, and efficiency and energy intensity in GCC countries

Type of the article: Research ArticleAbstractFinancial institutions can play a critical role in promoting energy efficiency by facilitating investment in energy-saving technologies and infrastructure, as per the Sustainable Development Goals (SDGs). This study aims to investigate the impact of Financial Institutions’ Depth (FID), Access (FIA), and Efficiency (FIE) on Energy Intensity (EI) in the GCC countries from 2000 to 2021 within the Environmental Kuznets Curve (EKC) framework. To add novelty to the analysis, regulatory quality’s moderating role is also tested in the relationship between FID, FIA, FIE, and EI. Given the financial, economic, and institutional interconnectedness of the GCC region, second-generation panel econometric techniques, such as Cross-sectional Dependence (CD) unit root tests, cointegration, and Autoregressive Distributed Lag (ARDL), are employed. The findings confirm the long-run validity of the EKC in all models. In the short term, the EKC is only supported by an FID model. FIA and FID do not directly influence EI in either the short or long run. However, regulatory quality significantly moderated these relationships with long-run coefficients of –0.096 (FID) and –0.063 (FIA). FIE is found to reduce EI with the long-run coefficient of –0.109, and this effect is also moderated by better regulatory quality with the long-run coefficient of –0.087. However, FIE and its interaction with regulatory quality do not significantly impact EI in the short run. The results conclude that regulatory quality directly and consistently reduces EI in all models. These results emphasize the need to improve the financial institutions and regulatory governance to achieve energy efficiency in the GCC region.