Energy–finance dilemma: Assessing financial development in the shadow of energy inflation

Energy is regarded as a fundamental catalyst for several economic operations. Thus, its contribution to enhancing living standards worldwide is undeniable. The increase in energy prices can have wide-ranging effects across all sectors of the economy, particularly the financial sector. Rising energy prices can increase the cost of various financial goods and services, hindering the growth of the financial sector. However, the literature on the nexus between energy inflation and financial development is limited, resulting in a significant gap in the existing knowledge. This research aims to address this gap in the literature by assessing the impact of energy inflation on financial development via the use of MMQR. The findings of the MMQR methodology indicate that energy inflation hurts financial development at all quantiles, i.e., from the 10 th to 90 th quantiles. In contrast, economic expansion enhances financial development across all levels. Moreover, the ICT enhances financial development from the 50 th to the 90 th quantiles. Nonetheless, government effectiveness and natural resource rent do not significantly impact financial development. Governments should strengthen energy price stabilization policies to reduce energy inflation pressures and protect financial sector development.