Race to the Top or Bottom? Globalization and Education Spending in China

The question of whether economic globalization promotes or depresses governments' education spending has attracted social scientists' attention for decades. Existing literature presents an interesting contrast between two theoretical scenarios, namely race to the top and race to the bottom. This paper attempts to adapt the debate to the subnational context of China and argues that, under this decentralized authoritarian setting, economic globalization could boost the absolute levels of education funding by incentivizing human capital formation and by contributing to local government coffers but shrink its relative share in overall spending by shifting government priorities away from education to other budget items such as infrastructure that relate more closely to foreign investment. A dynamic panel data analysis of provincial-level statistics from China over an 11-year period confirms that inflow of foreign direct investment increases the absolute level but decreases the relative weight of education spending in the overall provincial budget, essentially a race to the top and to the bottom at the same time.