Association for Public Policy Analysis & Management

Sustained investment in higher education from the Chinese government has led to a rapid development in enrollment and research over the last 20 years. The scale of college enrollment has increased dramatically since the enrollment expansion in 1999. In 1995, the total enrollment of undergraduate students was about 2.9 million while in 2010, the same index was about 21.4 million. In research, as measured by the number of published papers, in 1990, slightly over 1% of research papers over the whole world had authors from China while this number changed to 13% in 2011 (Zhang, Bao, & Sun, 2016). Two famous national initiatives, “985 project” and “211 project”, have played a crucial role during the expansion. Higher education institutions (HEI) granted by these two national projects will receive huge appropriations with other policy benefits from both central and local governments.

With lots of funds, 985 and 211 HEIs begin to increase capital expenditure, including renovating old buildings and constructing new campus while the percentage of current expenditure (especially the compensation of all staff) is decreasing. The national policy has created a big impact on expenditure distribution among 985 and 211 HEIs. How do the rest HEIs react to this external shock? Either increasing current expenditure (product differentiation) or increasing capital expenditure (providing homogeneous products)? Intuitively, institutions which are closer to 985 or 211 HEIs are probably to be affected. Since many students prefer 985 or 211 HEIs (ranking, reputation, etc.), to recruit better students, the rest HEIs can spend more money on current expenditure, including competitive salary for faculty and staff or more financial aids for students. Oppositely, the rest HEIs can also increase the capital expenditure and borrow the experience and management models from 985 or 211 HEIs. It may be more cost-effective due to the positive externality of capital expenditure from 985 or 211 HEIs, such as a better cooperation platform in both teaching and research.

We explore the spillover effect of 985 or 211 HEIs on institutional expenditure distribution and how geographic factors contribute to this effect. Our analytic dataset includes a panel with more than 1,000 HEIs in 1995, 2000, 2005, and 2010, derived from the administrative data provided by the Ministry of Education in China. Especially, we apply the spatial econometric model to examine the spillover effect of 985 or 211 HEIs on other institutions’ expenditure distribution. Each institution will be assigned a geographic coordinate (x, y) so that the distance can be measured directly.

Though 985 and 211 HEIs are superstars, they only represent about 10% of all HEIs in China. Millions of students are enrolled in less famous HEIs. However, the unbalanced funding structure has created segregation. What’s worse, students who graduate from non-985 or non-211 HEIs are facing discrimination in the labor market and graduate schools. We hope our research can help policymakers to understand the importance of the geographic location of each HEI and to reconsider how to allocate limited resource to provide broader college access with less inequality.