The impact of digitalization on the efficiency of innovation factor allocation: from the perspective of factor flow

Jinying Chen and Yufen Chen

Applied Economics, 2025, vol. 57, issue 27, 3709-3725

Abstract: The quick progress of digitalization has caused profound impacts on innovation activities. However, the impact and mechanism of digitalization on the efficiency of innovation factor allocation remain to be discussed. This study extends Brandt’s misallocation framework to the field of innovation and measures the efficiency of innovation factor allocation in China from 2011 to 2021. Then we empirically study the impact of digitalization on the efficiency of innovation factor allocation and intensively analyse the mechanism and heterogeneous effects. The results show that digitalization significantly and positively impacts the efficiency of innovation factor allocation. In particular, the promotion effect on the efficiency of innovation capital allocation is more obvious. The flow of innovation factors is an important transmission mechanism for digitalization to promote the efficiency of innovation factor allocation. The heterogeneity tests show that the impact of digitalization on inland areas and areas with overallocation of innovation factors is not obvious. This study constructs an analysis framework from the perspective of factor flow and tests the heterogeneous effects of digitalization on the efficiency of innovation factor allocation. Our findings have important implications for how to comprehensively improve the efficiency of innovation factor allocation in the digital era.

Date: 2025
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DOI: 10.1080/00036846.2024.2337817

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