Threshold Effects of Institutional Quality, Renewable Energy, and Financial Development on Global Warming Potential for Oil-Producing Countries
Keywords:
Institutional quality, renewable energy, global warming, financial development, foreign direct investmentAbstract
This study aims to examine the threshold effects of institutional quality, renewable energy, and financial development on global warming potential among selected oil-producing OPEC member countries between 2000 and 2023. The research is applied in purpose and descriptive-analytical in nature. The dataset consists of panel data from eight OPEC oil-producing countries (Algeria, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, and the United Arab Emirates) over the period 2000–2023. After conducting panel unit root and Kao cointegration tests to ensure data stability and long-run equilibrium, a Panel Smooth Transition Regression (PSTR) model was employed to estimate nonlinear threshold effects. Institutional quality was used as the transition variable, with an estimated threshold value of 0.964. The results revealed that institutional quality, financial development, foreign direct investment, and renewable energy consumption have negative and significant impacts on global warming potential. These effects become stronger once institutional quality surpasses its threshold level, indicating that improved governance and institutional efficiency enhance the effectiveness of environmental policies in mitigating global warming. In contrast, population growth and non-renewable energy consumption have positive and significant effects. The adjusted R² value of 0.82 confirmed the robustness and explanatory power of the model. Improving institutional quality in oil-producing countries—especially when it exceeds the threshold level—plays a pivotal role in reducing global warming. Financial development, foreign investment, and renewable energy expansion also contribute to mitigation when supported by strong and transparent institutions. Therefore, environmental policies should simultaneously strengthen institutional structures and promote renewable energy adoption to ensure sustainable progress toward climate goals.
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Copyright (c) 2025 Yousef Nematzadeh (Author); Khashayar Seyed Shokri (Corresponding author); Shahryar Nessabian, Narsis Amin Rashti, Nazi Mohammadzadeh-Asl (Author)
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
