How does factor market distortion affect green innovation? Evidence from China's sustainable development demonstration belt

Abstract

Green innovation meets the simultaneous demands of green and innovation-driven development models when it is deemed as a key to realizing a green economic transition. However, factor market distortion impedes China's green development through factor mobility and resource allocation. Under such circumstances, we detect whether and how factor market distortion affects green innovation from various perspectives in the case study of China's Sustainable Development Demonstration Belt. The findings demonstrate that the distortion has a pronounced inhibiting effect on the green innovation growth in the study area. For the eastern and more-developed cities, factor market distortion considerably inhibits green innovation improvement, while the impact is less pronounced in the western (or central) and less developed cities. Furthermore, the factor market distortion negatively affects green innovation through some effective paths, like energy efficiency and environmental regulation. From a spatial perspective, the green innovation's spillover effect could be reduced by both the distortions of the labor market and capital market. Thus, this study would provide strong theoretical support for enhancing the factor market system and improving the multiregional green innovation power in China, as well as scientific suggestions on transitioning to China's sustainable development.