The Impact of Factor Market Distortion on the Efficiency of Technological Innovation: A Spatial Analysis

The growth of scientific and technological innovation in China is facing a bottleneck under the influence of domestic and foreign environments. The economic internal circulation policy of China may explore new driving forces for innovation from the perspective of optimizing the efficiency of production factor allocation. This research applies the provincial data from 2001 to 2017 to empirically investigate the spatial effects of factor market distortions on the efficiency of technological innovation. The DEA (Data envelopment analysis) model with variable returns to scale is exploited to measure the efficiency of technological innovation. The production function approach can be harnessed to measure labor market distortions and capital market distortions. The spatial correlation test results and the spatial econometric results regressed with three spatial weight matrices draw the following conclusions: (1) No matter how the spatial connection is established, the efficiency of the scientific and technological innovation in China shows a strong positive spatial correlation. (2) Labor market distortion and capital market distortion lead to low factor allocation efficiency, which inhibits the improvement of scientific and technological innovation efficiency. (3) When considering inter-regional economic connections, the inhibitory effect of factor market distortions on the efficiency of technological innovation shows spillover effects on surrounding areas. (4) Human capital and advanced industrial structure are conducive to the improvement of scientific and technological innovation efficiency. Optimizing the efficiency of factor market allocation can become a significant path for China to release new room for improvement in scientific and technological innovation.