18.12.2023 New Publication: What is the Potential Impact of Iran’s Economic Global Integration on Saudi Arabia’s Military Spending?

How might Saudi Arabia respond to Iran’s re-integration into international trade and investment markets?Footnote1 Can Iran’s increasing economic globalization after the lifting of nuclear sanctions lead to a peace dividend for Saudi Arabia, thereby reducing the arms race in the Middle East? These questions have received greater attention when a significant agreement was reached between both countries on 10 March 2023 to resume their political relationship after seven years of conflict. In a recent study published in Defence and Peace Economics, Professor Farzanegan has explored these questions and provided data-based answers.

Farzanegan examines the response of Saudi Arabia’s military spending to a positive shock in Iran’s economic globalization index. Using vector autoregression (VAR)-based impulse response functions with data from 1990 to 2020 and controlling for other key economic and demographic indicators, a negative and statistically significant response of Saudi Arabia’s military spending to a positive shock in Iran’s economic integration in the global markets is found. A similar decreasing response of Saudi Arabia’s military spending following a positive shock in Iran’s political globalization index is also observed. However, such a negative and significant response for positive shocks in other components of Iran’s globalization, such as in the social and cultural aspects, is not found.

Finally, study does not observe a significant positive response from either country’s military spending to a positive shock in the other’s military spending, suggesting that the military budgeting of either country is not strictly interconnected. In early 2023, both countries reached an agreement to reactivate their political relationship, promising a decrease in regional tension and a favorable outlook for the potential easing of economic sanctions on Iran. This may result in a significant peace dividend, especially for Saudi Arabia.

To read this study, please refer to: https://doi.org/10.1080/10242694.2023.2293323