AgBioForum, 24(3): 1-7. ©2022 AgBioForum The Role of Financial Credits, Economic Growth, and Sustainable Energy on the Environmental Condition in Iraq Mona Abdel Sakban Fahd University of Babylon, College of Administration and Economics, Iraq Email: bus.sakban@student.uobabylon.edu.iq Mahdi Khaleel Shadeed Al-Mamoori University of Babylon, College of Administration and Economics, Iraq Email: bus.mahdi.khaleel@uobabylon.edu.iq Hussein Abbas Al-Shammari University of Babylon, College of Administration and Economics, Iraq Email: bus.hussein.abbas@uobabylon.edu.iq Due to enormous commercial and financial operations that demand new literature and the experience of regulators, environmental degradation has become an important issue. Consequently, this study investigates the effect of financial credits, economic growth (EG), renewable energy (RE) output, and energy import on Iraq's environmental condition (carbon dioxide (CO2) emissions. The paper also utilized a control variable, such as industrialization, to predict Iraq's environmental circumstances. From 1991 through 2020, secondary statistics were gathered from the World Development Indicators (WDI). Dynamic Auto-regressive Distributed Lags (DARDL) were used to examine the variables' relationship. Financial credits, economic growth, RE output, energy import, and industrialization were found to have a negative relationship with CO2 emissions in Iraq. The research advises policymakers on preventing environmental deterioration through effective financial credits, economic growth, and renewable energy. Key words: Financial credits, economic growth, renewable energy output, energy import, environmental condition, CO2 emissions. 1. INTRODUCTION In Iraq and other developing countries, bank credit is defined as money granted by financial institutions exclusively to private sector enterprises and households. It excludes government-provided finance. The average value of bank credit in Iraq between 1960 and 2020 was 7.97 percent, with a minimum of 1.27 percent in 2004 and a maximum of 14.07 percent in 1970. In 2020, the percentage was 13.07 percent. Based on information from 161 countries, the global average in 2020 is 58.11 percent. 1) Although there is a large body of literature on the concept of environmental conditions, particularly in developing countries, many of its aspects remain unexplored, particularly from an Iraqi perspective; therefore, the present investigation will focus on environmental conditions to highlight their significance to improve the world's environmental quality and conditions for the future. 2) Le T-H et al. (2020) and Kim et al. (2020) worked on the financial credits and CO2 emission; however, the current study will also work on it with the addition of economic growth, RE output, energy import, and industrialization in Iraq with a new data set. 3) The model incorporating financial credits, economic growth, RE output, energy import, industrialization, and CO2 emissions in Iraq has not been validated in recent years. 4) Muhammad (2019) and Abbasi et al. (2021) worked on energy, EG, and CO2 emission; however, the current study will also work on it, in addition to the addition of financial credits, RE output, energy import, and industrialization in Iraq with a new sample set. 5) Chen et al. (2019) and Sinha et al. (2018) worked on the relationship between RE output and environmental degradation. In contrast, using a new data set, the current study will examine the relationship between the addition of financial credits, economic growth, RE output, energy import, and industrialization. 6) Naimoğlu (2022) and Lin and Raza (2020) worked on energy imports and CO2 emissions. However, the current study will also work on this relationship by adding other variables, such as financial credits, economic growth, RE output, and industrialization in Iraq, using a new data set. 7) Li et al. (2015) and Sinha et al. (2018) worked on industrialization and CO2 emission. In contrast, using a new data sample, the current study will examine the relationship with adding variables such as financial credits, economic growth, RE output, and energy import in Iraq. The significance of the present investigation is that 1) the present investigation will highlight the importance of the environment for the future of Iraq and the world, 2) the present investigation will add to the literature on environmental conditions in Iraq, and 3) the present investigation will also provide the support to ecologically related professionals to review and upgrade policies about the environment to create a safe future for the world. 2. LITERATURE REVIEW Due to the growth in CO2 emissions, global environmental degradation is accelerating at an alarming rate. To reduce its effects, the international community is concentrating on financial credits. According to the literature, there is a significant relationship between financial credits and CO2 emission. Le T-H et al. (2020) examined if financial inclusion, including financial credits, affects CO2 emissions in this environment. The research was conducted on 31 Asian economies. As a sample, the investigation employed the 10-year data set. The collected information spans the years 2004 through 2014. Using PC Analysis, the collected material was examined. The research indicated that the increase in CO2 emissions in the mailto:bus.sakban@student.uobabylon.edu.iq mailto:bus.mahdi.khaleel@uobabylon.edu.iq mailto:bus.hussein.abbas@uobabylon.edu.iq AgBioForum, 24(3), 2022 | 2 Fahad, Al-Mamoori and Al-Shammari. — The Role of Financial Credits, Economic Growth, and Sustainable Energy on the … region appears to result from higher income, energy consumption, industry, urbanization, foreign direct investment, and financial inclusion. It seems that increased economic openness has reduced CO2 emissions. Kim et al. (2020) studied if financial credits through the finance curse affect CO2 emission. The investigation was conducted in developed and developing nations. The investigation utilized the 24-year data set as a sample. The collected data spans the years 1989 through 2013. The collected material was examined using the ARDL technique (Hamsal et al., 2021). The analysis indicated a strong correlation between financial credits and CO2 emissions. The nature of the relationship is favorable. The increase in financial credits results in increased investment in environmentally friendly projects and reduces CO2 emissions. In addition, Khezri et al. (2021) examined whether there is a correlation between financial development, i.e., financial development, and CO2 emissions. The examination was conducted on the 31 economies of Asia and the Pacific. The investigation utilized the 18-year data set as a sample. The collected data spans the years 2000 through 2018. The collected sample was examined using the Spatial Durbin model. The analysis indicated that financial development, namely financial credits, had a substantial positive effect on CO2 emissions in the selected economies. Any nation's prosperity depends on its economic conditions. A nation with a healthy EG rate protects its future generation. Several factors affect or are affected by EG, and CO2 emission is one of them. Muhammad (2019) explored whether there is a correlation between economic growth and CO2 emissions in this environment. The examination was conducted on the economies of the Middle East and North Africa. The investigation utilized the 16-year data set as a sample. The collected information spans the years 2001 to 2017. The collected material was examined using the GMM technique. The results demonstrated a negative relationship between EG and CO2 emission. An improvement in EG results in a reduction in CO2 emissions. Abbasi et al. (2021) investigated the relationship between energy, industrial growth, urbanization, CO2 emissions, and EG. The investigation took place in Pakistan. The investigation utilized the 50- year data set as a sample. The collected information spans the years 1972 to 2018. The collected material was examined using the ARDL method. The analysis found that both industrial-added value and energy usage have a favorable effect on EG. Therefore, we conclude that CO2 emissions positively impact Pakistan's economic development. In addition, Radmehr et al. (2021) examined the relationship between RE usage, CO2 emissions, and EG. The examination focused on the economies of the European Union. The investigation utilized the 20-year data set as a sample. The collected information spans the years 1995 to 2014. GS2SLS was applied to the collected sample. Economic development and geographical correlation were found to have a stronger relationship than carbon dioxide (CO2) emissions or renewable energy (RE) utilization. In addition, there is a reciprocal relationship between EG, carbon emissions, and the utilization of renewable energy. Energy is necessary today, as every business and home activity depend on it. The huge quantity of energy products impacts the environment via CO2 emissions. Chen et al. (2019) evaluated the relationship between RE production EG, foreign commerce, and CO2 emission in this environment. In China, the investigation was conducted. As a sample, the investigation used the 34-year data set. The collected data spans the years 1980 through 2014. The collected material was analyzed using ARDL and other techniques. The results demonstrated the correlation between RE production and CO2 emission. Particularly in China, the growth in RE output cuts CO2 emissions. Likewise, Sinha et al. (2018) examined the relationship between RE generation and CO2 emission. In India, the investigation was conducted. The investigation utilized the 44-year data set as a sample. The collected data spans the years 1971 through 2015. The collected material was examined using the ARDL technique. The study results indicate that the long-run elasticity of energy consumption is greater than the short-run elasticity, even though RE has been proven to have a significant negative impact on CO2 emissions. de Souza Mendonça et al. (2020) examined the relationship between GDP, population, RE production, and CO2 emission. The analysis was conducted on the world's 50 largest economies. The investigation utilized the 35- year data set as a sample. The collected data spans the years 1990 through 2015. The collected sample was analyzed using a historical regression model. 1) In the selected economies, CO2 emissions increase by 0.27 percent for every 1 percent increase in GDP; 2) in all economies, CO2 emissions increase by 1.67 percent for every 1 percent increase in population; and 3) the average reduction in CO2 emissions caused by a 1 percent increase in RE's electrical matrix share is 0.13 percent. Developing nations throughout the world import energy to meet their energy needs. This energy import is also related to several additional concerns, such as environmental degradation and EG. In this regard, Naimoğlu (2022) examined the relationship between energy imports and CO2 emissions. The analysis was conducted on the world's top 10 energy-importing economies. As an example, the investigation utilized the thirty-year data set. The collected data spans the years 1990 through 2019. The collected material was examined using the ARDL technique. The analysis found that the EKC theories apply to these economies. Moreover, the usage of nuclear energy and the pricing of energy reduces CO2 emissions. However, energy imports result in increased CO2 emissions. Lin and Xu (2020) also examined the relationship between energy security and CO2 emissions. The investigation took place in Pakistan. As a sample, the investigation used the 28-year data set. The collected data spans the years 2012 through 2040. The AgBioForum, 24(3), 2022 | 3 Fahad, Al-Mamoori and Al-Shammari. — The Role of Financial Credits, Economic Growth, and Sustainable Energy on the … collected sample was analyzed using the MARKAL framework. The analysis indicated that while total RE will increase, the availability of primary energy would decrease only somewhat. The transportation industry and other sectors would consume the most fuel, increasing CO2 emissions that may be offset by using renewable energy sources. In addition, Rehman et al. (2021) examined the relationship between industrialization, energy imports, economic development, and CO2 emission. The investigation took place in Pakistan. The investigation utilized the 50-year data set as a sample. The collected data spans the years 1971 through 2019. The collected material was examined using the ARDL technique. The investigation's findings demonstrated that industrialization had a favorable effect on CO2 emissions. The shifting EG has a detrimental impact on CO2 emissions. There are various factors for the global increase in CO2 emissions. A quick development in industrialization is one of the key drivers. In this context, Li et al. (2015) investigate whether urbanization, industrialization, and CO2 emissions are related. The research was conducted on 73 economies. The investigation utilized the 40-year data set as a sample. The collected information spans the years 1971 through 2010. The collected material was examined using the STIRPAT technique. The analysis results demonstrated that industrialization and CO2 emissions are significantly related. A rise in CO2 emissions also accompanies increased industrialization. Similarly, Sinha et al. (2018) demonstrated the connection between industrialization and CO2 emission. Investigations were conducted in Bangladesh. The investigation utilized the 35-year data set as a sample. The collected information spans the years 1975 through 2010. The collected material was examined using the ARDL technique. The results demonstrated that industrialization increases CO2 emissions, particularly in Bangladesh. In addition, Mentel et al. (2022) examined the connection between industrialization and CO2 emission. The investigation was conducted on the 44 sub-Saharan African economies. The investigation utilized the 15-year data set as a sample. The collected data spans the years 2000 through 2015. The collected sample was examined using a GMM estimator. According to the investigation findings, industrialization increases CO2 emissions in selected economies, leading to environmental damage. 3. RESEARCH METHODS The article examines the impact of financial credits, EG, RE output, energy import, and industrialization on CO2 emissions in Iraq. The research used the secondary data extracted from the WDI from 1991 to 2020. The study equation is given as under: 𝐶𝑂2𝐸𝑡 = 𝛼0 + 𝛽1𝐹𝐶𝑡 + 𝛽2𝐸𝐺𝑡 + 𝛽3𝑅𝐸𝑂𝑖𝑡 + 𝛽4𝐸𝐼𝑡 + 𝛽5𝐼𝑁𝐷𝑡 + 𝑒𝑡 (1) Where; CO2E = Carbon Dioxide Emissions t = Time Period FC = Financial Credits EG = Economic Growth REO = Renewable Energy Output EI = Energy Import IND = Industrialization The primary variable of the study was the environmental state as measured by CO2 emissions (metric tons per capita). In addition, the study employed three predictors, including financial credits measured with domestic credit provided by the financial sector (percentage of GDP), EG measured with GDP growth (annual percentage), and sustainable energy measured with RE output (percentage of total output) and energy import (percentage of energy use). The article also utilized the control variable, such as industrialization as measured by Industry value added (percent of GDP). These measurable constructions are listed in Table 1. Table 1: Variables with Measurements S# Variables Measurement Sources 01 Environmental Condition CO2 emissions (metric tons per capita) WDI 02 Financial Credits Domestic credit provided by the financial sector (% of GDP) WDI 03 Economic Growth GDP growth (annual percentage) WDI 04 Sustainable Energy RE output (% of total output) WDI Energy import (% of energy use) WDI 05 Industrialization Industry value added (% of GDP) WDI The study employed descriptive statistics to examine the details of the variables, including minimum values, total observations, maximum values, average values, and standard deviations. In addition, the correlation matrix was used to examine the correlation between predictors. In addition, the unit root was verified using the Phillips– Perron (PP) and Augmented Dickey–Fuller (ADF) tests. The equation is as follows: 𝑑(𝑌𝑡) = 𝛼0 + 𝛽𝑡 + 𝛶𝑌𝑡−1 + 𝑑(𝑌𝑡(−1)) + Ɛ𝑡 (2) In addition, the research applied the (Westerlund et al., 2008) approach to examine the co-integration among variables. The equations are given below: LMφ(i) = Tφ̂i (r̂i/σ̂i ) (3) LMτ(i) = φ̂i/SE(φ̂i) (4) The equations show �̂�𝒊 that represents the estimate beside standard error, �̂�2 𝑖 that represents the long-run measured variance, 𝜑𝑖 (𝐿) = 1 − ∑ 𝜑𝑖𝑗𝐿𝑗 represents the scalar polynomial with L lag length, and ρi represents the factor loading parameters vector. In addition, the ARDL model, which offers the short- and long-run correlation between variables, was utilized in this AgBioForum, 24(3), 2022 | 4 Fahad, Al-Mamoori and Al-Shammari. — The Role of Financial Credits, Economic Growth, and Sustainable Energy on the … study. It is the optimal method for determining the link between variables when neither I(0) nor I(1) have a unit root (Zaidi et al., 2018). In addition, it controls the impact of autocorrelation and heteroscedasticity on estimations (Nazir et al., 2018). The equation is given as follows: ∆𝐶𝑂2𝐸𝑡 = 𝛼0 + ∑𝛿1∆𝐶𝑂2𝐸𝑡−1 + ∑𝛿2∆𝐹𝐶𝑡−1 + ∑𝛿3∆𝐸𝐺𝑡−1 + ∑𝛿4∆𝑅𝐸𝑂𝑡−1 + ∑𝛿5∆𝐸𝐼𝑡−1 + ∑𝛿6∆𝐼𝑁𝐷𝑡−1 + 𝜑1𝐶𝑂2𝐸𝑡−1 + 𝜑2𝐹𝐶𝑡−1 + 𝜑3𝐸𝐺𝑡−1 + 𝜑4𝑅𝐸𝑂𝑡−1 + 𝜑5𝐸𝐼𝑡−1 + 𝜑6𝐼𝑁𝐷𝑡−1 + Ɛ𝑡 (5) The research also employed the DARDL to examine the relationship between factors. This strategy is created by Jordan et al. (2018). This strategy addresses all the drawbacks of the standard ARDL paradigm. The equation is given as follows: ∆𝐶𝑂2𝐸𝑡 = 𝛼0 + ∑𝛿1∆𝐶𝑂2𝐸𝑡−1 + ∑𝛿2∆𝐹𝐶𝑡 + ∑𝛿3∆𝐹𝐶𝑡−1 + ∑𝛿4∆𝐸𝐺𝑡 + ∑𝛿5∆𝐸𝐺𝑡−1 + ∑𝛿6∆𝑅𝐸𝑂𝑡 + ∑𝛿7∆𝑅𝐸𝑂𝑡−1 + ∑𝛿8∆𝐸𝐼𝑡 + ∑𝛿9∆𝐸𝐼𝑡−1 + ∑𝛿10∆𝐼𝑁𝐷𝑡 + ∑𝛿11∆𝐼𝑁𝐷𝑡−1 + Ɛ𝑡 (6) 4. FINDINGS OUTCOMES The study employed descriptive statistics to examine the details of the variables, including minimum values, total observations, maximum values, average values, and standard deviations. The results revealed that the average value of CO2E was 11,219 metric tons per capita, while the average value of FC was 31,201 percent, and EG was 9,010 percent. In addition, the results indicated that the average value of REO was 54.091%, the average value of EI was 5.902%, and the average value of IND was 44.720%. Table 2 displays these results. Table 2: Descriptive Statistics Variable Obs Mean Std. Dev. Min Max CO2E 30 11.219 0.732 7.121 14.320 FC 30 31.201 1.201 28.102 39.133 EG 30 9.010 2.493 7.201 13.298 REO 30 54.091 3.731 51.029 61.256 EI 30 5.902 0.860 1.401 9.257 IND 30 44.720 2.776 37.892 47.676 In addition, the correlation matrix was used to examine the correlation between predictors. According to the findings of this study, the financial credits, EG, RE output, energy import, and industrialization are negatively correlated with CO2 emissions in Iraq. Table 3 displays these results. Table 3: Matrix of Correlations In addition, the paper utilized the PP and ADF tests to validate the unit root. CO2E, FC, EG, and IND were shown to be stationary at level, while REO and EI were stationary at first difference. Table 4 displays these results. Table 4: Unit Root Test ADF PP Series Level First difference Level First difference CO2E -2.011*** ------ -2.721*** ------ FC -3.012*** ------ -3.331*** ------ EG -2.421*** ----- -2.782*** ------ REO ------ -5.102*** ------ -5.902*** EI ------ -5.423*** ------ -5.910*** IND -3.631*** ------ -3.781*** ------ In addition, the technique (Westerlund et al., 2008) was utilized to analyze the co-integration of variables. The results indicated that p-values are less than 0.05 and t-values are more significant than 1.96, meeting the standard criterion. These results suggest that co-integration exists. Table 5 displays these results. Table 5: Co-integration Test Model No Shift Mean Shift Regime Shift Test Stat p-value Test Stat p-value Test Stat p-value LMτ -3.021 0.000 -4.392 0.000 -5.771 0.000 LMφ -3.328 0.000 -4.901 0.000 -5.891 0.000 The research also employed the DARDL to examine the relationship between factors. According to the findings of this study, the financial credits, EG, RE output, energy import, and industrialization are negatively correlated with CO2 emissions in Iraq. These connections are shown in Table 6. Variables CO2E FC EG REO EI IND CO2E 1.000 FC -0.673 1.000 EG -0.616 0.382 1.000 REO -0.321 0.733 0.783 1.000 EI -0.736 0.482 0.438 0.330 1.000 IND -0.322 0.734 0.543 0.493 0.544 1.000 AgBioForum, 24(3), 2022 | 5 Fahad, Al-Mamoori and Al-Shammari. — The Role of Financial Credits, Economic Growth, and Sustainable Energy on the … Table 6: Dynamic ARDL Model Variable Coefficient t-Statistic Prob. CO2E 4.021*** 5.782 0.000 𝐹𝐶𝑡−1 -3.782*** -6.019 0.000 FC -3.102** -3.102 0.043 𝐸𝐺𝑡−1 -4.392*** -3.223 0.004 EG -3.201*** -4.301 0.002 𝑅𝐸𝑂𝑡−1 -0.676*** -5.888 0.000 REO -1.291** -2.338 0.032 𝐸𝐼𝑡−1 -2.191*** -4.102 0.000 EI -0.887*** -5.201 0.000 𝐼𝑁𝐷𝑡−1 -2.102*** -2.133 0.009 IND -0.891** -3.291 0.002 Cons -2.192** -4.201 0.000 R square = 56.201 Stimulation = 5000 5. DISCUSSIONS The results demonstrated a negative correlation between financial credits and CO2 emissions. These results are consistent with Le T-H et al. (2020), who found that using diverse materials, such as plastic, metals, chemicals, etc., in various economic sectors generates smoke, fumes, or harmful wastes. These compounds produce CO2 emissions. The availability of financial credits helps businesses to switch to eco-friendly products and halts CO2 emissions. These results are also consistent with the findings of Lv et al. (2021), who found that even though economic actions create hazardous gases from waste, financial credits enable businesses to adopt effective environmental management and lower CO2 emissions. The results demonstrated a negative correlation between EG and CO2 emissions. The results are consistent with Adedoyin et al. (2020)'s assertion that, even though the increasing frequency of economic practices causes waste and CO2 emissions, EG promotes innovative economic strategies that lead to a decrease in waste and, consequently, waste emissions. These conclusions are consistent with Lin and Raza (2020)'s research. This prior study suggests that when a nation outperforms its competitors on the global market, it has a greater capacity to utilize eco-friendly technical resources and, consequently, regulate CO2 emissions, which may be detrimental to the natural environment. The results demonstrated a negative correlation between RE output and CO2 emissions. These results are consistent with the research of Radmehr et al. (2021), which investigates the effectiveness of RE technology in reducing CO2 emissions. According to the study, mining for energy resources and nuclear energy reactions release greenhouse gases contributing to climate change. The alternate solution, the RE output, maintains the lowest CO2 emission economic practices. These results are also consistent with the findings of Razmjoo et al. (2021), who found that in countries with abundant renewable energy production, the demand for fossil fuels derived from mining and nuclear energy declines. Consequently, there is a significant drop in CO2 emissions. The results demonstrated a negative relationship between energy imports and CO2 emissions. These results are consistent with the findings of Zhang et al. (2019), who hypothesize that importing foreign RE technologies stimulates domestic enterprises to shift to renewable energy to continue operations. The energy shift reduces carbon dioxide emissions. These results are also consistent with Zhang et al. (2019)'s research, which demonstrates that importing energy-efficient technology and RE sources reduces reliance on non-RE-based economic practices. Consequently, there are fewer CO2 emissions. The results demonstrated a negative relationship between industrialization and CO2 emissions. According to Jin et al. (2021)'s research, the industrial revolution brings about changes in technology applicable to economic operations. The eco-friendly economic technologies produce identical results with fewer CO2 emissions. These results are consistent with Appiah et al. (2021)'s assertion that industrialization promotes innovative organizational practices. The innovativeness enhances the efficiency of the business and decreases the likelihood of CO2 emissions. 6. IMPLICATIONS As a result of the present study's substantial contribution to literature, scholars might utilize it as a guide for future literary endeavors. The study investigates the environmental effects of financial credits, EG, RE output, and energy import, as well as controlling factors such as industrialization. In this study, CO2 emissions have been used as a proxy for environmental conditions. In addition, the writers begin analyzing environmental circumstances in Iraq as a result of financial credits, EG, RE output, and energy imports. The present research also has numerous empirical implications. The research instructs environmental authorities and economics on how to decrease CO2 emissions. The study suggests that to reduce CO2 emissions, and policymakers must boost financial credit inside the economy. It suggests that governments and economists should focus on raising EG to reduce CO2 emissions. The research assists policymakers in formulating measures to prevent environmental deterioration via appropriate financial credits, EG, and renewable energy sources. There is a directive for policymakers mandating that they increase RE output. It AgBioForum, 24(3), 2022 | 6 Fahad, Al-Mamoori and Al-Shammari. — The Role of Financial Credits, Economic Growth, and Sustainable Energy on the … would reduce carbon dioxide emissions. It is also urged that the importation of renewable, clean, and economical energy should be encouraged, and CO2 emissions should be minimized. In addition, the study indicates that governments must effectively control industrialization to reduce CO2 emissions and improve environmental quality. 7. CONCLUSION The study aimed to determine the contribution of financial credits, EG, RE output, energy import, and industrialization to environmental improvement. Iraqi empirical data on financial credits, EG, RE output, energy import, industrialization, and CO2 emissions were gathered by questionnaire surveys. The results demonstrated a negative relationship between CO2 emissions and financial credits, EG, RE output, energy import, and industrialization. The results indicated that the availability of financial credits improves the financial situation of businesses and increases their capacity to battle CO2 emissions and exercise environmental responsibility. The results showed that when a country is destined to have a higher EG, it engages in inventive development and reduces its CO2 emissions. The results suggested that countries proficient in producing considerable quantities of RE can mitigate CO2 emissions. The study found that a country's ability to import energy enhances its use of clean energy and its CO2 mitigation efforts. 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