Factor price distortion and ecological efficiency: the role of institutional quality

There is a lack of studies on whether market distortions inhibit the ecological efficiency. This study introduces the ecological efficiency based on the bootstrap-data envelopment analysis (DEA) method as the indicator of environmental performance in China, uses the transcendental logarithmic production function to calculate factor price distortion, and further identifies whether the factor price distortion has a negative impact on the ecological efficiency using the system generalized method of moments (GMM) method. Meanwhile, institutional quality is considered a threshold variable to examine the relationship between factor price distortion and ecological efficiency based on the threshold model. The result shows that factor price distortion significantly inhibits the improvement of ecological efficiency. Moreover, institutional quality is considered to be the threshold of factor price distortion affecting ecological efficiency. Further investigation of heterogeneity effect suggests that the inhibitory impact of factor price distortion on ecological efficiency is more significant in the central and western regions. This study provides a supplement to the study on environmental performance from the perspective of factor distortions and expands the framework of the influence mechanism of factor price distortion affecting ecological efficiency.