Energy-scarce MENA countries see biggest farm gains from clean finance

The Middle East and North Africa's (MENA) agricultural future may depend less on how much green finance it receives than on where that money goes. New research finds clean energy funding boosts farm performance mainly in non-oil economies facing real energy bottlenecks.

The study, titled “Green Energy Finance and Agricultural Performance in MENA Region: Structural Pathways Toward Sustainability” and published in Resources, examines agricultural value added across MENA economies from 2000 to 2023 and finds that international clean energy finance supports agricultural performance mainly in non-oil economies, while its impact weakens or disappears in oil-exporting states.

Clean energy finance becomes a test of agricultural resilience

Agriculture remains a strategic sector for MENA economies despite its shrinking share in overall output. The region continues to rely on agriculture for food security, rural income and employment, even as farmers face water scarcity, land degradation, climate variability and weak rural infrastructure. These pressures have sharpened the policy question at the center of the study: whether clean energy finance can help raise agricultural value in a region where energy, water and food systems are tightly linked.

The paper argues that clean energy finance does not operate as a direct agricultural subsidy. Instead, it works through infrastructure and energy-access channels. International financial flows into renewable energy can improve power availability, lower energy costs, support irrigation, strengthen storage systems and improve processing capacity. These channels are especially important in rural areas where energy shortages can limit agricultural productivity.

Using a panel of MENA countries over 2000-2023, the study tests the relationship between agricultural value added and several macroeconomic, institutional and energy-related variables. These include clean energy finance, GDP per capita, trade openness, arable land, inflation and institutional quality. The analysis separates oil-exporting and non-oil economies to test whether energy endowments change the effect of green finance on agriculture.

The results show that GDP per capita is strongly and positively associated with agricultural value added. Higher income levels appear to support agricultural modernization by expanding infrastructure, improving access to finance, and enabling investment in water-saving technologies, storage, transport and productivity-enhancing tools. In MENA, where natural constraints are severe, economic development acts less as a background condition and more as an enabling mechanism for agricultural resilience.

Clean energy finance also shows a positive and statistically significant relationship with agricultural value added in the main model. The finding supports the view that renewable-energy investment can help agriculture by easing energy bottlenecks rather than by replacing conventional farm inputs. Solar-powered irrigation, rural electrification, cold storage and processing facilities are among the types of investments that can indirectly strengthen agricultural output.

The effect is not universal. The same finance that helps energy-scarce countries improve agricultural performance does not produce comparable gains in energy-abundant oil economies, the paper states.

Oil and non-oil economies show sharply different outcomes

The study finds a divide between oil-exporting and non-oil MENA economies. In non-oil economies, clean energy finance has a positive and highly significant effect on agricultural value added. In oil-exporting countries, the effect is weak, insignificant or negative depending on the model.

The study identifies Algeria, Iran, Iraq, Libya and Yemen as oil-exporting economies, while Djibouti, Egypt, Jordan, Lebanon, Morocco, Syria and Tunisia are treated as non-oil economies. This split is used to capture structural differences in energy availability, economic dependence and constraints on agricultural production.

The results show that clean energy finance matters most where energy scarcity restricts agricultural productivity. In non-oil economies, additional renewable-energy investment can ease binding constraints on irrigation, water pumping, post-harvest storage and rural processing. These improvements can lift agricultural value added because energy access is a limiting factor.

In oil-exporting economies, the same financial flows produce weaker results because energy availability is already less constrained. The study interprets this as a diminishing marginal returns effect. When basic energy access is not the main barrier to agricultural production, additional clean energy finance has less room to generate immediate agricultural gains.

The interaction model confirms this asymmetry. Clean energy finance has a positive baseline effect in non-oil economies, while the interaction with oil-exporting status is negative. In practical terms, the positive effect of clean energy finance is substantially reduced in oil economies. This means the difference is not just descriptive but statistically meaningful.

The study also finds that the economic magnitude matters. In non-oil economies, a 1 percent increase in clean energy finance is associated with an estimated 0.028 percent rise in agricultural value added. That may appear modest, but the cumulative effect can become meaningful over time, particularly where agriculture is highly sensitive to energy access, water management and infrastructure quality.

The results also show that trade openness is negatively associated with agricultural value added. The paper links this to structural vulnerability. Greater trade integration can expose domestic agriculture to global competition, especially where local producers face weak productivity, fragmented landholdings, limited technology adoption and import dependence. In such settings, open markets may accelerate a shift away from agriculture unless governments pair trade liberalization with stronger support for domestic competitiveness.

Inflation shows a positive association in some level-based models, but the paper cautions that this likely reflects nominal price effects rather than real productivity gains. Rising prices can lift measured agricultural value added without improving output or efficiency. The study therefore warns against reading inflation as a development tool. Macroeconomic stability remains critical.

Arable land and institutional quality show weaker and less consistent effects in the short run. For arable land, the result suggests that MENA agriculture is increasingly shaped by productivity and technology rather than simple expansion of cultivated areas. In a region constrained by water and land limits, growth through area expansion is limited. For institutional quality, the study suggests that governance improvements may matter over longer periods but are less visible in short-run models.

Policy message: green finance must target structural constraints

Clean energy finance should not be treated as a one-size-fits-all solution for agricultural transformation. Its effectiveness depends on whether energy scarcity is a binding constraint in the economy receiving the funds.

For non-oil MENA economies, the findings support targeted investment in decentralized clean energy infrastructure. Solar irrigation, rural mini-grids, cold storage, renewable-powered processing and efficient water systems could produce stronger agricultural gains than broad, untargeted energy finance. These investments can help farmers manage water scarcity, reduce dependence on costly energy sources and improve post-harvest value chains.

The policy challenge is different for oil-exporting economies. Since energy abundance reduces the marginal benefit of additional clean energy finance for agriculture, these countries may need to focus more on water efficiency, productivity upgrading, land management, institutional reform and diversification away from hydrocarbon-dependent structures. Clean energy finance may still support sustainability goals, but it is less likely to transform agriculture unless paired with reforms addressing the sector’s deeper constraints.

The findings also call for caution on trade policy. Trade openness can bring efficiency gains and access to inputs, but the study shows that it may also weaken domestic agriculture when local producers are not competitive. MENA governments should therefore combine trade integration with policies that improve rural infrastructure, access to finance, technology adoption and climate resilience.

The research also highlights the timing problem in energy-transition investment. In short-run models, clean energy finance can show negative effects, likely because large renewable-energy projects require upfront investment, reallocation of resources and time before productivity benefits emerge. This suggests policymakers should expect transitional adjustment costs rather than immediate agricultural gains.

The paper uses several robustness checks, including fixed-effects models with Driscoll-Kraay standard errors, panel-corrected standard errors, Granger causality tests and System GMM estimation. According to the author, the results are structural associations rather than strict proof of causality. The study also acknowledges data limits, including the lack of climate variables and the possibility that structural differences across MENA countries go beyond the oil versus non-oil classification.