Financialization, natural resources rents and environmental sustainability dynamics in Saudi Arabia under high and low regimes

Abstract

In light of increasing environmental degradation, a body of research has studied the role that financialization and natural resources endowments can play as an emergency lever for the achievement of a sustainable environment. The previous studies on the factors leading to environmental degradation have followed a restrictive approach as they have resorted mainly to CO2 emissions and ecological footprint. Few existing studies have referred to more globalizing indicators of environmental degradation such as the ecological gap and its dynamics. This study focuses not only on environmental sustainability, but also on its dynamics as proxies of environmental degradation. The aim of our paper is to identify the dynamic impacts on environmental sustainability caused by financial development and natural resources rents in low and high sustainability regimes. Therefore, the objective of this paper is to verify if the provision of a developed financial sector and the endowment of abundant natural resources for a country like Saudi Arabia makes it possible to ensure a sustainable environment. Results based on the Markov switching model in the case of Saudi Arabia spanning the period 1985–2017 revealed that financialization promotes environmental sustainability, but not its dynamics, in high sustainability regime. Our findings reported also that natural resources rents are beneficial for the achievement of environmental sustainability both in low and high sustainability regimes, but do not constitute a means to preserve the dynamics of environmental sustainability. Biomass energy consumption has negative effects on ecological gap and its dynamics under high sustainability regime. Economic growth is beneficial for reducing the ecological gap, but harmful for maintaining a dynamic of environmental sustainability in low sustainability regime. The effects of economic growth are reversed in high sustainability regime. The results found in this study not only offer decision-makers the appropriate policies to achieve a sustainable environment, but also some recommendations to preserve its dynamics.