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The effect of capital and labour distortion on innovation

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  • Yidan Liang

Abstract

Factor misallocation has significant effects on productivity and innovation. Innovation is widely regarded as the most important element for economic growth. This article aims to study how capital and labour distortions influence innovation activities in China. We apply system generalised methods of moments using a natural experiment with an exogenous shock. The results indicate that the measurements for factor misallocation are significantly negatively correlated to innovation. The findings have important implications for emerging countries to improve their innovation productivity.

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  • Yidan Liang, 2023. "The effect of capital and labour distortion on innovation," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 1709-1737, June.
    • Handle: RePEc:bla:acctfi:v:63:y:2023:i:2:p:1709-1737
    DOI: 10.1111/acfi.12924
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