A Spatio-Temporal Autoregressive Analysis of War News Effects on Financial Development in Petroleum Exporting Countries

Articles in Press

Document Type : Research Paper

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Department of Economics, Faculty of Management, Economics and Accounting, University of Hormozgan, Bandar Abbas, Iran

10.22059/ier.2025.399028.1008279

Abstract

The present study utilizes a Spatio-Temporal Autoregressive (STAR) model to examine the effects of negative war news shocks on financial development in petroleum exporting countries over the period 2000–2023. The findings indicate that war news exerts a robust and substantial negative influence on financial development, such that a unit war news shock diminishes financial development by 0.70 units in the short run. However, this effect dissipates over time, reaching a null point after a period of five years. The forecast error variance decomposition (FEVD) further reveals that 35% of the fluctuations in financial development are attributable to war news, which exceeds the contributions of oil price (25%) and sanctions (15%). In terms of geography, the spatial coefficient indicates that 32% of the variation in each country's financial development is influenced by its neighboring countries. This effect increases to 0.40 when using a weight matrix based on bilateral trade, indicating the key role of economic relations in the transmission of shocks. Conversely, countries exhibiting comparable institutional structures demonstrate diminished spillover effects. A comparison of countries also suggests that the UAE and Saudi Arabia are the most resilient economies with the least vulnerability, while Iran and Venezuela are the most vulnerable due to sanctions and heavy dependence on petroleum. This study offers a comprehensive framework for analyzing the effects of geopolitical shocks on petroleum economies by combining temporal and spatial dimensions. The study demonstrates that neglecting any of these dimensions can lead to inaccurate estimates.

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Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 17 November 2025

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