Factor market reform and technology innovation are important measures to promote high-quality economic development. Their relationship is the analysis focus of academic circles. Studies have shown that the marketization process and industrial green innovation are spatially related in the provincial interval and not randomly distributed. The empirical research using dynamic space Durbin model combined with partial differential equations shows that the industry green innovation has inherent inertia and self-sublation characteristics. The early innovation accumulation has a dynamic impact on the current innovation process. From a nationwide perspective, factor market distortions have significant inhibitory effects on local industry green innovation in various regions, and long-term effects exceed short-term effects. The differences in factor market distortion interaction strategies between the relatively developed and underdeveloped regions have caused a positive and indirect impact on the green innovation of other regions. From the sub-regional level, the factor market distortion in the eastern coastal provinces is significantly weaker than that in the central and western regions, and its suppression effect on the industry green innovation is smaller.