Open Access Articles

Investigating the Role of Countries' Income Levels in the Impact of Financial Development on Total Factor Productivity in Selected Countries

Authors

Ebrahim Bahraminia * Department of Economics, Payam Noor University, Tehran, Iran.
Saeed Nematolah Aziminia Department of Management, Payam Noor University of Taft, Yazd, Iran.

https://doi.org/10.22105/aaa.v3i2.99

Downloads

Abstract

The effects of financial market development on promoting capital productivity and economic growth have been widely discussed by endogenous growth models in the economics literature. Financial development can effectively reduce friction in the economic system and promote Total Factor Productivity (TFP) growth through efficiency improvements and technological progress. However, the effect of financial development on capital allocation is not always positive. Resource optimization can promote TFP growth, and resource mismatch can restrain TFP growth; in other words, at different stages of economic development, financial development has a heterogeneous effect on TFP in different countries. Accordingly, the problem facing the present study is how the effect of financial development on the TFP index is affected by the income level of countries. For this purpose, the selected countries were classified into separate income groups, and the relationship between financial development and TFP was tested in these countries during the period 2010-2023. The results of the model estimation in this study show that the coefficient of the financial development variable in high-income countries and middle-income countries is significant and positive, and is 0.0826 and 0.0121, respectively, meaning that with a 1% improvement in the financial development index, TFP in high-income countries and middle-income countries improves by 0.08% and 0.01%, respectively. Based on the results of the model estimation in low-income countries, this coefficient is not significant. Accordingly, financial development has not been able to improve the TFP index in low-income countries.

Keywords

Financial development Total factor productivity Income level Panel data

References (51)

[1] Li, T., & Liao, G. (2020). The heterogeneous impact of financial development on green total factor productivity. Frontiers in energy research, 8. https://doi.org/10.3389/fenrg.2020.00029

[2] Greenwood, J., & Jovanovic, B. (1990). Financial development, growth, and the distribution of income. Journal of political economy, 98(5), 1076–1107. https://doi.org/10.1086/261720

[3] King, R. G., & Levine, R. (1993). Finance, entrepreneurship and growth. Journal of monetary economics, 32(3), 513–542. https://doi.org/10.1016/0304-3932(93)90028-E

[4] Huang, Z., Liao, G., & Li, Z. (2019). Loaning scale and government subsidy for promoting green innovation. Technological forecasting and social change, 144, 148–156. https://doi.org/10.1016/j.techfore.2019.04.023

[5] Romer, P. M. (1986). Increasing returns and long-run growth. Journal of political economy, 94(5), 1002–1037. https://doi.org/10.1086/261420

[6] Buera, F. J., & Shin, Y. (2013). Financial frictions and the persistence of history: A quantitative exploration. Journal of political economy, 121(2), 221–272. https://doi.org/10.1086/670271

[7] Buera, F. J., Kaboski, J. P., & Shin, Y. (2011). Finance and development: A tale of two sectors. American economic review, 101(5), 1964–2002. https://doi.org/10.1257/aer.101.5.1964

[8] Cole, H. L., Greenwood, J., & Sanchez, J. M. (2016). Why doesn’t technology flow from rich to poor countries? Econometrica, 84(4), 1477–1521. https://doi.org/10.3982/ECTA11150

[9] Rioja, F., & Valev, N. (2004). Does one size fit all?: A reexamination of the finance and growth relationship. Journal of development economics, 74(2), 429–447. https://doi.org/10.1016/j.jdeveco.2003.06.006

[10] Seven, U., & Coskun, Y. (2016). Does financial development reduce income inequality and poverty? Evidence from emerging countries. Emerging markets review, 26, 34–63. https://doi.org/10.1016/j.ememar.2016.02.002

[11] Ruiz, J. L. (2018). Financial development, institutional investors, and economic growth. International review of economics & finance, 54, 218–224. https://doi.org/10.1016/j.iref.2017.08.009

[12] Asteriou, D., & Spanos, K. (2019). The relationship between financial development and economic growth during the recent crisis: Evidence from the EU. Finance research letters, 28, 238–245. https://doi.org/10.1016/j.frl.2018.05.011

[13] Arcand, J. L., Berkes, E., & Panizza, U. (2015). Too much finance? Journal of economic growth, 20(2), 105–148. https://doi.org/10.1007/s10887-015-9115-2

[14] Fagiolo, G., Giachini, D., & Roventini, A. (2020). Innovation, finance, and economic growth: An agent-based approach. Journal of economic interaction and coordination, 15(3), 703–736. https://doi.org/10.1007/s11403-019-00258-1

[15] Dadgar, Y., & Nazari, R. (2009). Evaluation of financial development indicators in Iran. International conference on the development of the financing system in Iran, Tehran, Iran. Civilica. (In Persian). https://civilica.com/doc/72379

[16] Gu, Y., Xu, K., Hu, X., & Chen, M. (2024). Research on improving the financial capacity of farmers based on fuzzy analytic hierarchy process. Management analytics and social insights, 1(1), 88–102. https://doi.org/10.22105/6f2des36

[17] Zhang, Y. J. (2011). The impact of financial development on carbon emissions: An empirical analysis in China. Energy policy, 39(4), 2197–2203. https://doi.org/10.1016/j.enpol.2011.02.026

[18] Marashi Aliabadi, S., Saeidi, K., Zandi, F., Lashkarizadeh, M., & Safavi, B. (2021). Comparison and analysis of the impact of financial development indicators on carbon dioxide emissions during Iran’s economic boom and recession. Environmental science and technology, 23(2), 261-273. (In Persian). https://search.isc.ac/dl/search/defaultta.aspx?DTC=8&DC=1267233

[19] Dizji, M., & Ahangari Gergi, M. (2015). The impact of financial development on income distribution in developed and developing countries. Quarterly journal of financial economics, 9(33), 75-104. (In Persian). https://civilica.com/doc/1570287

[20] Abounoori, A., & Teimoury, M. (2013). Investigation of the effect of financial development on economic growth: A comparative study in OECD and UMI countries. Quarterly journal of economic growth and development research, 3(11), 29-40. (In Persian). https://civilica.com/doc/405391/

[21] Imam Verdi, G. (1998). The role of financial markets in economic development. (In Persian). https://www.mbri.ac.ir/

[22] Samadi, S., Samadi, S., Nasrollahi, K., & Karamalian Cichani, M. (2007). Development of financial markets and economic growth. Economic research and perspectives, 7(3), 1-16. (In Persian). https://ecor.modares.ac.ir/article_13164.html?lang=en

[23] Choong, C. K., & Chan, S. G. (2011). Financial development and economic growth: A review. African journal of business management, 5(6), 2017–2027. https://doi.org/10.5897/AJBM10.772

[24] Mohammadi, E. (2025). Analytical study of the effects of exchange rate and oil revenues on herding behavior in the Tehran Stock Exchange. Modern research in performance evaluation, 4(4), 281-292. (In Persian). https://doi.org/10.22105/mrpe.2026.243084

[25] Ahmad Pour, S. S., & Shirmardi, S. A. (2018). Voluntary social responsibility reporting and financial auditing on comprehensive quality. The first international conference on new approaches in business management and accounting with an emphasis on value creation and resistance economy, Tehran, Iran. Civilica. (In Persian). https://civilica.com/doc/822498

[26] Loayza, N., & Schmidt-Hebbel, K. (2002). Monetary policy functions and transmission mechanisms: An overview. Serieson central banking, analysis, and economic policies, 4. https://repositoriodigital.bcentral.cl/xmlui/handle/20.500.12580/3649

[27] Ma, Y., & Lin, X. (2016). Financial development and the effectiveness of monetary policy. Journal of banking & finance, 68, 1–11. https://doi.org/10.1016/j.jbankfin.2016.03.002

[28] Bernanke, B. S., & Gertler, M. (1995). Inside the black box: The credit channel of monetary policy transmission. Journal of economic perspectives, 9(4), 27–48. https://doi.org/10.1257/jep.9.4.27

[29] Monfared, S. M., Mohammadi, T., Khazri, M., & Priyor, O. (2021). The role of financial development in the efficiency of Iran’s monetary policy in determining output and inflation. Quarterly journal of economic modeling, 15(55), 113–18. (In Persian). https://civilica.com/doc/1859856

[30] Krause, S., & Rioja, F. (2006). Financial development and monetary policy efficiency. Emory economics, 613(158), 100–121. https://www.researchgate.net/publication/5013477

[31] Makvandi, R. (2024). Analysis of the impact of macroeconomic factors on the development of financial products: Application of the PESTEL model in identifying opportunities and threats. Transactions on quantitative finance and beyond, 1(2 SE-Articles), 233–246. https://doi.org/10.22105/tqfb.v1i2.40

[32] Claessens, S., Demirgüç-Kunt, A., & Huizinga, H. (2001). How does foreign entry affect domestic banking markets? Journal of banking & finance, 25(5), 891–911. https://doi.org/10.1016/S0378-4266(00)00102-3

[33] Mohammadi Nejad Pashaki, M. B. (2024). Investigating and analyzing economic sanction roles in return spillover to stock, currency, and gold coin markets. Financial and banking strategic studies, 2(1), 60-72. (In Persian). https://doi.org/10.22105/fbs.2024.194532

[34] Shahinpour, A., & Karabulut, K. (2022). Presenting a model of the impact of economic variables on the total productivity index in Iran. Journal of productivity management, 16(60), 279-301. (In Persian). https://www.magiran.com/paper/2414928

[35] Giang, M. H., Xuan, T. D., Trung, B. H., & Que, M. T. (2019). Total factor productivity of agricultural firms in vietnam and its relevant determinants. Economies, 7(1), 1–12. https://doi.org/10.3390/economies7010004

[36] International Labour Organization (ILO). (2024). Productivity measurement and analysis: A guidance note. https://www.ilo.org/publications/productivity-measurement-and-analysis-guidance-note

[37] Antonio D. Kalaw, J. (2015). Handbook on productivity. Asian Productivity Organization (APO). https://www.apo-tokyo.org/wp-content/uploads/2015/10/Handbook-on-Productivity-2015

[38] Pritchard, R. (1990). Measuring and Improving Organizational Productivity: A Practical Guide. Bloomsbury Academic.

[39] Razavi, S. A., & Rostami, M. (2024). Comparative analysis of economic and institutional efficiency of Iran and selected Southeast Asian countries in the framework of development and productivity indicators. Strategic studies in financial management and insurance (SSFMI), 1(1), 18-29. (In Persian). https://doi.org/10.22105/ssfmi.v1i1.106

[40] Ali Mohammadpour, A., Zabihi, A., & Faghani Makrani, K. (2020). The impact of capital productivity management on capital asset pricing models with emphasis on life cycle. Productivity management quarterly, 14(1), 171-194. (In Persian). https://civilica.com/doc/1376911

[41] Magazzino, C., & Santeramo, F. G. (2023). Financial development, growth and productivity. Journal of economic studies, 51(9), 1–20. https://doi.org/10.1108/JES-07-2022-0397

[42] Ouidir, S. M., Kafia, B., & Ribeiro, H. (2024). Financial development, economic growth and total factor productivity in Algeria: An empirical study. International journal of economic perspectives, 18(2), 417–433. https://ijeponline.org/index.php/journal/article/view/568

[43] Pal, S., Mahalik, M. K., Mallick, H., & Heshmati, A. (2024). Does financial development induce total factor productivity growth in an emerging economy? The role of gender human capital. Journal of public affairs, 24(4), e2945. https://doi.org/10.1002/pa.2945

[44] Ezzahid, E., & Elouaourti, Z. (2017). Financial development and total factors productivity channel: Evidence from Africa. https://mpra.ub.uni-muenchen.de/81764/

[45] Han, J., & Shen, Y. (2015). Financial development and total factor productivity growth: Evidence from China. Emerging markets finance and trade, 51(1), S261–S274. https://doi.org/10.1080/1540496X.2014.998928

[46] Arizala, F., Cavallo, E., & Galindo, A. (2012). Financial development and TFP growth: Cross-country and industry-level evidence. Applied financial economics, 23(6), 433–448. https://doi.org/10.1080/09603107.2012.725931

[47] Pedroni, P. (2004). Panel cointegration: Asymptotic and finite sample properties of pooled time series tests with an application to the ppp hypothesis. Econometric theory, 20(3), 597–625. https://doi.org/10.1017/S0266466604203073

[48] Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of econometrics, 90(1), 1–44. https://doi.org/10.1016/S0304-4076(98)00023-2

[49] Li, Z., Liao, G., Wang, Z., & Huang, Z. (2018). Green loan and subsidy for promoting clean production innovation. Journal of cleaner production, 187, 421–431. https://doi.org/10.1016/j.jclepro.2018.03.066

[50] Levine, R. (2000). Are bank-based or market-based financial systems better? Journal econom a chilena (the chilean economy), 3(1), 25–55. https://ideas.repec.org/a/chb/bcchec/v3y2000i1p25-55.html

[51] Beck, T., & Levine, R. (2004). Stock markets, banks, and growth: Panel evidence. Journal of banking & finance, 28(3), 423–442. https://doi.org/10.1016/S0378-4266(02)00408-9

Article Metrics

Published 2026-06-26
Issue Vol. 3 No. 2 (2026): Accounting and Auditing with Applications (AAA)
Section Articles
Views 300
Downloads 137

License

Copyright (c) 2026 Accounting and Auditing with Applications

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

View License Details

How to Cite

Bahraminia, E. ., & Aziminia, S. N. . (2026). Investigating the Role of Countries’ Income Levels in the Impact of Financial Development on Total Factor Productivity in Selected Countries. Accounting and Auditing With Applications , 3(2), 162-178. https://doi.org/10.22105/aaa.v3i2.99

Download Citation

Similar Articles

Ebrahim Bahrami-Nia, Saeed Nematollah Azimi-Nia, Finance and Productivity Across Income Levels: Unveiling the Heterogeneous Effects of Financial Development , Accounting and Auditing with Applications : Vol. 3 No. 3 (2026): Accounting and Auditing with Applications (AAA)
Nayereh-Sadat Tabaei Aghdaei, Mohsen Dastgir, Does Corporate Sustainability Shape Audit Opinion? The Moderating Role of Audit Committee Independence , Accounting and Auditing with Applications : Vol. 3 No. 3 (2026): Accounting and Auditing with Applications (AAA)
Maral Ezadpanah, Maryam Sadeghi, The Effect of Key Audit Matters on Investor Sentiment in Companies Listed on the Tehran Stock Exchange , Accounting and Auditing with Applications : Vol. 3 No. 2 (2026): Accounting and Auditing with Applications (AAA)
Seyyed Esmaeil Najafi, Akbar Alem-Tabriz, A Novel Approach to Evaluating Bank Branch Performance: Integrating Financial Ratios and Data Envelopment Analysis (DEA) , Accounting and Auditing with Applications : Vol. 2 No. 3 (2025): Accounting and Auditing with Applications
Ali Ismail Korepaz, Habibeh Karimi, The Effect of CEO Expert Power on the Diversification of Banks Listed on the Tehran Stock Exchange , Accounting and Auditing with Applications : Vol. 2 No. 4 (2025): Accounting and Auditing with Applications
Shamsullhaq Fazl, The Effect of Managerial Ability on Performance with the Mediating Role of Capital Structure , Accounting and Auditing with Applications : Vol. 1 No. 3 (2024): Accounting and Auditing with Applications
Maral Izadpanah, Maryam Sadeghi, Do Key Audit Matters Shape Investor Sentiment? Evidence from the Tehran Stock Exchange , Accounting and Auditing with Applications : Vol. 3 No. 3 (2026): Accounting and Auditing with Applications (AAA)
Maryam Ghandehari, Mohammad Bagher Hamzeh, Fatemeh Kamali Yazdi, Examining the Impact of Blockchain-Based Accounting Systems on Preventing Financial Fraud in Organizations: An Organizational Psychology and Employee Behavior Analysis of Trust in Digital Systems , Accounting and Auditing with Applications : Vol. 2 No. 4 (2025): Accounting and Auditing with Applications
Yazdan Rostami, Elyas Asgari, Nafiseh Rajaee, Samira JafarzadehTaraghdari, Investigating the Impact of Financial Reporting Quality on the Risk of Stock Price Collapse with Regard to the Moderating Role of Corporate Governance , Accounting and Auditing with Applications : Vol. 2 No. 4 (2025): Accounting and Auditing with Applications
Zahra Joorbonyan, Deep Analysis of Financial Indicators Affecting Bank Efficiency Using the Monte Carlo Simulation Technique , Accounting and Auditing with Applications : Vol. 2 No. 3 (2025): Accounting and Auditing with Applications

1-10 of 60 Next

You may also start an advanced similarity search for this article.