Economic Growth, Environment, FDI Inflows, and Financial Development in Middle East Countries: Fresh Evidence from Simultaneous Equation Models

This study aims to investigate the relationships between economic growth, foreign direct investment (FDI) inflows, environment quality, and financial development for Middle East countries using simultaneous equation models over the period 1980–2014. Our empirical results pointed out that there is a unidirectional causality running from financial development to CO 2 emissions. However, the results support the occurrence of bidirectional causality from CO 2 emissions and economic growth, a bidirectional causal relationship between FDI inflows and CO 2 emissions, and a bidirectional causal relationship between FDI inflows, economic growth, and financial development for the global panel. The study suggests that financial systems should take into account environmental aspects in their current operations in these countries. In addition, it is obligatory for Middle East countries to adopt sound financial, foreign, and economic policies to promote economic growth, protect the environment, with strong FDI inflows and a higher level of financial development.