What does this research mean for the field?

Fiscal policy negatively impacts green economic growth in OIC countries in the short term, while the use of natural resources positively affects growth overall, with institutional quality moderating these effects. Novelty: ClaimNovelty.NOVEL_FINDING. Consensus alignment: ConsensusAlignment.NEUTRAL.

What question did this study set out to answer?

The aim is to analyze how fiscal policies and natural resource use affect green economic growth in OIC countries, influenced by institutional quality.

February 16, 2026

Fiscal policy, natural resources and Islamic finance on green growth in OIC countries: the moderating role of institutional quality

Key Points

The aim is to analyze how fiscal policies and natural resource use affect green economic growth in OIC countries, influenced by institutional quality.
Utilized first-difference generalized method of moments dynamic panel data.
Applied fully modified ordinary least squares on data from 17 selected OIC countries.
Data sourced from the World Bank, SESRIC, IIFM, and WGI from 2014–2023.
Fiscal policy negatively impacts green growth in the short term, especially in low-income countries.
Natural resources have a positive effect on green growth in both short and long terms, though high-income countries may experience suppression.
Sukuk and Islamic finance impact green growth positively in the long term but are not significant short term.

Abstract

Purpose This study aims to fill the research gap related to green economic growth in the Organization of Islamic Cooperation (OIC) countries by validating the environmental Kuznets curve (EKC) theory through the role of fiscal policy, the use of natural resources, sukuk and Islamic banking, as well as the interaction of institutional quality on green economic growth. Design/methodology/approach Using first-difference generalized method of moments dynamic panel data and fully modified ordinary least squares on 17 selected OIC countries with data obtained from the World Bank, SESRIC, IIFM and WGI during 2014–2023. Findings The study found that fiscal policy has a significant negative impact on green economic growth in the short term, especially in low-income countries. Meanwhile, the use of natural resources has a positive and significant effect overall, both in the short- and long term. In high-income countries, the use of natural resources suppresses green economic growth. Sukuk and Sharia financing have a positive but not significant impact on short-term green economic growth, but they become essential in the long term. Sukuk is more effective in developed economies, while Islamic bank financing has a negative impact in weak economies. Furthermore, the role of institutional quality moderation mitigates the adverse effects of fiscal policy and strengthens natural resource management, although it remains limited to low-income countries. This finding confirms the existence of an Inverted U-shaped relationship in the context of EKC. Research limitations/implications This research highlights the need for more environmentally friendly fiscal policies, efficient natural resource management and the development of sukuk and Sharia financing to support sustainable projects in OIC countries. In addition, improving the quality of institutions is needed to strengthen governance and regulations that encourage green economic growth and more effective economic diversification. Originality/value To the best of the authors’ knowledge, this research is the first to explore the growth of the green economy in OIC countries, comprehensively integrated with the role of government policies, natural resources, Islamic finance and institutional quality.

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