Does Market-Oriented Reform Make the Industrial Sector “Greener” in China? Fresh Evidence from the Perspective of Capital-Labor-Energy Market Distortions

The market-oriented reforms boost economic take-off in China, but the lag of the factor market still leads to many disadvantages where the factor market distortion is a stylized fact. There is rarely direct evidence showing whether market-oriented reform can spur industrial green development (IGD) although the industrial sector is the main battlefield of market-oriented reform. Herein this study integrates labor, capital, energy into a unified research framework and investigates the impact of market-oriented reforms in different fields on IGD from the perspective of factor market distortion. The results from China’s 30 provinces show that the distortions in capital market and energy market play a significantly negative role in IGD . Further calculation shows that the growth potential of the national IGD level is 10.117% and 2.291% per year respectively under the ideal condition of eliminating the market distortions of capital and energy. It is encouraging that increasing investment in R&D and pollution control will weaken the inhibitory effect. Of note, the inhibition effects are significantly heterogeneous and asymmetric across quantiles . An interesting finding is that the negative effect of energy market distortion is the weakest in areas in the mid-industrialization stage, where government regulation should not be completely abandoned