Financial Liberalization and Smart Financial Infrastructure: Evidence from Multi-Frequency Analysis of Total Factor Productivity

Mousavian, Seyed Hamed; Bayat, Vajihe

Financial Liberalization and Smart Financial Infrastructure: Evidence from Multi-Frequency Analysis of Total Factor Productivity

Document Type : Original Article

Authors

Seyed Hamed Mousavian

Vajihe Bayat

PhD., Department of Economics, SR.C., Islamic Azad University, Tehran, Iran

Abstract

This study investigates the impact of financial market liberalization indices and intelligent digital financial services on total factor productivity (TFP), with particular emphasis on their dynamic effects across different time frequencies within the context of digital transformation. Initially, variable reliability was evaluated using the Hegyi and Phillips-Perron unit root tests; Subsequently, the Johansen-Juselius cointegration test confirmed a robust long-run equilibrium relationship among TFP, financial market liberalization, and intelligent digital financial services.
The estimation results reveal that financial liberalization indicators—including stock market depth, foreign direct investment, financial depth, and trade openness—positively and significantly enhance TFP. Conversely, macroeconomic instability, reflected in exchange rate volatility and rising interest rates, reduces productivity performance. Credit market frictions, including non-performing loans, loan loss reserves, and government debt, also exert significant adverse effects on productivity growth. In contrast, intelligent digital financial services and smart financial infrastructure strengthen productivity by improving digital resource allocation, reducing information asymmetry, lowering transaction and information costs, enhancing financial transparency, and supporting more efficient digital financial intermediation.
Overall, the findings indicate that the productivity gains generated by financial market liberalization are substantially reinforced when supported by digital financial transformation and intelligent financial infrastructure, whereas credit frictions and structural banking inefficiencies may offset these benefits. Accordingly, the study highlights that coherent fiscal and financial policies, together with strategic investment in digital financial technologies, fintech innovation, artificial intelligence-enabled financial services, and smart banking infrastructure, are essential for achieving sustainable improvements in total factor productivity and accelerating the transition toward a resilient digital economy.

Keywords

Financial market liberalization

smart financial services

total factor productivity

digital transformation

financial services intelligence

Subjects

Digital Transformation

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