Abstract

This study examines the dynamic association between sustainable finance and societal results in Arab countries by employing a Vector Autoregression (VAR) framework from 1980 to 2024. The analysis includes essential financial indicators, such as financial development and domestic credit, as well as macroeconomic and structural variables like GDP per capita growth, government expenditure, gross capital formation, inflation, and population growth, to assess their impact on income inequality and social disparities.

The empirical findings indicate that social inequality in Arab countries has significant persistence, implying that social differences are profoundly entrenched in enduring structural and institutional contexts. The findings demonstrate that sustainable finance variables have constrained and temporally contingent impacts on social outcomes. Financial development and domestic credit exhibit little short-term effects on inequality, however their impact progressively unfolds over time via indirect transmission channels linked to financial inclusion, investment distribution, and economic engagement. Granger causality studies yield minimal evidence of direct causal links between sustainable finance and inequality, suggesting that social consequences are predominantly influenced by overarching structural and institutional dynamics rather than transient financial variations.

Impulse response functions and variance decomposition studies further validate the persistence of inequality and the comparatively limited role of financial factors in elucidating the variability of social outcomes. Macroeconomic and demographic elements, especially population expansion and structural inflexibilities, seem to have a more significant impact on socioeconomic inequalities throughout the area.

The findings indicate that sustainable finance is inadequate for fostering inclusive social transformation in Arab countries without concurrent institutional reforms, enhanced governance quality, robust financial inclusion mechanisms, and comprehensive socio-economic development strategies. This study enhances the sustainable finance literature by offering dynamic empirical data from a hitherto underexamined regional context marked by institutional restrictions and enduring socio-economic disparities.

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