The Effects of Financial Liberalization Shocks and Credit Frictions on the Total Factor Productivity in industry Sector Index in Iran

Document Type : applicative

Authors

1 Kharazmi University

2 Department of Economics

10.30473/jier.2026.77667.1536

Abstract

This study examines the effects of financial liberalization shocks and credit frictions on the total factor productivity (TFP) index in Iran using structural vector autoregressive models. The main objective of the research is to analyze how TFP responds to shocks arising from financial market developments, financial deepening, and credit constraints within a coherent econometric framework based on macroeconomic theory. The data used are annual and cover the period from 1370 to 1403. To measure financial liberalization, stock price indices, foreign direct investment, financial depth, and trade liberalization were employed, while credit frictions were captured using the ratios of non-performing loans, loan loss reserves, doubtful debts, and public debt.First, the Augmented Dickey-Fuller (ADF) unit root test indicated that all variables are non-stationary at levels but stationary at first differences. Subsequently, the Johansen–Juselius cointegration test confirmed the existence of a long-term equilibrium relationship among the model variables. Then, a structural vector autoregressive model was estimated by imposing economically motivated restrictions, with the optimal lag length determined as one period. Stability tests also confirmed the dynamic validity and robustness of the model .The empirical findings indicate that financial liberalization shocks, including stock market development, increased foreign direct investment, financial deepening, and trade liberalization, have a positive and significant effect on total factor productivity. In contrast, shocks associated with credit frictions have a negative and significant impact on productivity, highlighting the role of financial constraints in hindering investment, innovation, and firm efficiency.

Keywords

Main Subjects

Files

History

  • Receive Date: 19 March 2026
  • Revise Date: 12 June 2026
  • Accept Date: 15 July 2026

Share

How to cite

Statistics