Market and Financial Mechanism on Human Capital Investment in Science and Technology: An investigation of Science and Engineering Graduate Student's Aspiration for Doctoral Degree

In order to achieve sustainable development, China is seeking an innovation-led growth model in recent years. According to the Endogenous Growth Theory, an important factor contributing to innovation-based growth is human capital in Science and Engineering (S&E). While the scale of R&D personnel in China has witnessed tremendous growth during the past decades, the quantity and quality of high-level S&E human capital still lag behind major developed countries.;In China, graduate education is the primary incubator for high level S&E human capital, and it plays an important role in the national innovation system. Graduate education in China used to rely on government funding, but cost-sharing policy was recently introduced into the system in order to enhance adequacy and efficiency of education finance through market mechanism. However, there is no consensus on whether market or government mechanism is more important in developing graduate education in S&E.;This study intends to investigate how market factors and government financial aids affect S&E student's aspiration for doctoral education in China. It reveals potential market and government failures that affect the quantity and quality of high level S&E human capital in China. The results would provide a reference for the reform on the financial system in S&E graduate education.;This study is based on the 2008 Beijing College Student Development Survey of the Graduate School of Education in Peking University. A sample of 2282 master students in S&E fields is selected for analysis. Another dataset used is the 2009 China's R&D Statistics Compilation. It provides information about the R&D market.;Based on the College Choice Model, a variety of statistical analysis methods are applied to address the research questions, including the logistic, the IV logistic, and the multilevel regressions. The findings include: (1) As a proxy for knowledge spillover effects, the amount of academic paper published in the respective field has significant negative impact on student's aspiration for doctoral degree, indicating that externality of knowledge impede human capital investment in S&E. According to this result, the basic science disciplines are more likely to encounter the problem of underinvestment on doctoral education. (2) Slow growth on the percentage of doctoral employees is negatively correlated with student's aspiration for PhD degree. Such fields are related to the New Strategic Industries in China. They are likely to encounter a shortage of high level R&D personnel in the future and get trapped into a "low skill equilibrium". (3) Students with better academic achievement are less likely to invest on doctoral education in fields with increasing demand for doctoral employees. Such fields possibly will face quality deterioration in doctoral education. (4) There is a significant positive correlation between financial aids and student's aspiration to pursue S&E doctoral education, and the effect of assistantship is larger than that of scholarship. Assistantship promotes student's doctoral aspiration in fields with adverse market conditions, which implies that assistantship can be an effective policy tool to correct market failures. (5) Compared with the US, research funding system in China has lower portion for S&E education, and the proportion of input on basic science is relatively small. As a result, the financial aid for S&E graduate students in China is relatively inadequate, and can hardly compensate the adverse market conditions. This can be a cause of the inefficient structure of financial system for S&E education.;To sum up, there is a need to coordinate the market mechanism and government policy to enhance human capital investment in S&E. Considering the market defects, it should be cautious in implementing the cost sharing policy to graduate education in basic science and fields related to the New Strategic Industries. On the other hand, despite the effectiveness of financial aids on stimulating investment on S&E doctoral education, inefficient finance structure of S&E graduate education can undermine the overall effect of financial aids. More resources should be channeled to S&E education in order to enhance the efficiency of government funding.