Extending the resource curse hypothesis to sustainability: Unveiling the environmental impacts of Natural resources rents and subsidies in Fossil Fuel-rich MENA Countries

Abstract

The resource curse hypothesis (RCH) has been extensively studied in various domains, including economic growth, democracy, and financial development. However, the relationship between RCH and environmental degradation has been largely overlooked. In this study, drawing on the experience of the MENA region, we aim to extend the RCH to environmental degradation and hypothesize that the resource curse also affects the environment. Applying the resource curse framework, we investigate the effects of natural resource rents (NRR), fossil fuel subsidies (FFSs), and Gross National Income (GNI) on the transition from fossil fuels consumption (FFC) to renewable energy consumption (REC), a critical aspect of achieving sustainability. Using the PMG ARDL panel cointegration technique and panel data from 2009 to 2021 for nine fossil fuel-rich MENA countries, which are among the top 20 most heavily subsidized fossil fuel markets globally, we provide a comprehensive analysis. Our findings confirm the existence of the resource curse, as both NRR and subsidies have negative effects on the transition to REC, while GNI positively influences REC. We further support these results by employing the FMOLS panel cointegration approach as a robustness check. The study highlights the necessity of implementing various policy interventions, such as diversifying energy sources, undertaking energy pricing reforms, phasing out fossil fuel subsidies, and promoting renewable energy adoption.