Does factor market distortion inhibit the green total factor productivity in China?

Abstract

Abstract This article measures green total factor productivity (GTFP) to discuss whether factor market distortions inhibit the green development of China's economy. Meanwhile, export and foreign direct investment (FDI) are taken into account based on a threshold model, considering export and FDI are closely related to factor market distortion, environment and the economy. The result shows that the factor market distortion has negative influences on China's GTFP growth, export and FDI's spillover effect significantly. Moreover, factor market distortion, was found to be the threshold of export and FDI's spillover effect, leading to inferior export and FDI, which further inhibit GTFP growth. This article provides a supplement to the issue from the perspective of environment based on the widely confirmed proposition that factor market distortion inhibits TFP growth. According to the results, we suggest that the Chinese government should reduce the control of factor market as much as possible, leaving the factor resources allocation to the market. This will not only promote an innovation-driven development, but also an energy-saving and environment-friendly economy in China. The article provides a new perspective on the influence mechanism of export and FDI on GTFP growth by discussing the impact path of factor distortion, and expands the empirical framework of the research direction as well.