Urbanization and population concentration are determinants of economic performance and development capacity. While population density can promote economic growth through productivity gains, agglomeration economies, and economic interactions, its effect on economic resilience depends on institutional conditions. This study examines the moderating role of institutional heterogeneity in the relationship between population density and economic resilience across Iranian provinces. Institutional heterogeneity is measured through three dimensions: information dissemination, industrialization, and market orientation. The analysis uses panel data for 31 provinces of Iran covering the period 2010–2024 and applies a fixed-effects panel regression model estimated by Generalized Least Squares (GLS). To address endogeneity and determine the direction of causality, Panel Granger causality tests and an instrumental variable (IV) approach are employed. The results show that population density has a positive and significant effect on economic resilience. Provinces with higher population concentration display a ability to absorb economic shocks and recover to their growth paths. Furthermore, the positive effect of population density is stronger in provinces characterized by higher levels of information dissemination, more advanced industrialization, and greater market orientation. These findings highlight the importance of institutional and structural conditions in enhancing the resilience benefits of population concentration. The causality analysis indicates that the relationship mainly runs from population density to economic resilience, with limited evidence of reverse causality. Overall, the results suggest that effective population management, investment in information infrastructure, balanced industrial development, and improved market efficiency can jointly strengthen regional economic resilience and support regional development in Iran and long-term economic stability.