The effect of capital and labour distortion on innovation

Yidan Liang*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)1709-1737
Number of pages29
JournalAccounting and Finance
Issue number2
Publication statusPublished - Jun 2023


  • Capital distortion
  • Innovation
  • Labour distortion
  • R&D


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