The Impact of Financial Development and Financialization of the Economy on Industrial Competitiveness in Iran: Evidence from the Mixed Data Sampling Approach

Document Type : applicative

Authors

1 Assistant Professor, Department of Economics, Faculty of Literature and Humanities, Ilam University , ilam, Iran

2 Master's student in Economics, Faculty of Literature and Humanities, Ilam University, Ilam, Iran

10.30473/jier.2026.76428.1524

Abstract

Industrial development and the competitiveness of industries require sustainable financial resources, access to capital, and efficient institutions. In this study, in addition to calculating the Economic Competitiveness Index using the Principal Component Analysis (PCA) method and four indicators —manufacturing value added, manufactured exports, medium and high-tech exports, and medium and high-tech manufacturing value added— the impact of financial development, financialization, and institutional quality on industrial competitiveness in Iran is examined using data from 1990 to 2021 and the Mixed Data Sampling (MIDAS) approach with a second-degree Polynomial Distributed Lag (PDL) model. The results show that financial development and institutional quality have a positive effect on improving industrial competitiveness, while financialization of the economy exerts a dual effect — positive in the short term and negative in the long term. This means that excessive and poorly regulated financialization can have adverse impacts on the value added and productivity of industries. Moreover, the results indicate that investment and economic complexity positively influence industrial competitiveness. Therefore, the combination of targeted financial development, effective management of the financialization process, and improvement of institutional quality can serve as an effective strategy to enhance competitiveness and achieve sustainable industrial development in Iran.

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Journal of Industrial Economics researches
Volume 9, Issue 33
October 2025

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History

  • Receive Date: 09 November 2025
  • Revise Date: 28 January 2026
  • Accept Date: 16 April 2026

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