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there are three decades of evidence that dominating instruction with a system of controlling external rewards may contribute to inferior learning

In this sentence, is the word "dominating" an adjective or a gerund?

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On its own, the subject of the verb "may contribute" is ambiguous.  To approach this question, we need further context.  The following excerpt from Diversity and Motivation: Culturally Responsive Teaching in College seems to match the text in question: 

     Another consistent research finding is that[,] when a learning activity is undertaken explicitly to attain some extrinsic reward, people respond by seeking the least demanding way of ensuring the reward.  Cramming for tests is an example of this phenomenon which comes easily to mind.  Since there are three decades of evidence that dominating instruction with a system of controlling external rewards may contribute to inferior learning, using a pedagogy based on theories of intrinsic motivation appears to be a more reasonable and effective approach to enhancing learning among culturally diverse students.

In context, there is a contrast between instruction dominated by extrinsic reward and instruction (possibly the same instruction) dominated by intrinsic motivation.  The authors support intrinsic motivation. 

The simple subject of "may contribute" is the gerund "dominating".  The complete subject is the gerund phrase "dominating instruction with a system of controlling external rewards".  Within the phrase, "instruction" is the direct object (and semantic theme) of "dominating", and the following prepositional phrase is an adjunct. 

Of course, the gerund has no subject.  However, it does imply a semantic agent or actor.  In this sentence, the actors are teachers -- an assumption which is directly supported by the intended audience of the book.  The thing which the authors claim may contribute to inferior learning is the action (by teachers) of imposing extrinsic rewards on their methods and materials. 
 

The alternative interpretation of the ambiguity casts the word "dominating" as a participle which modifies the word "instruction".  Were that the case, "instruction" would be the explicit semantic agent, leaving the semantic patient or theme implied.  Who or what the instruction might dominate remains unclear.

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Syntactically it could be either instruction which dominates (dominating as an adjectival participle modifying instruction) or to dominate instruction (dominating as a gerund with instruction as its object).

Frankly, neither strikes me as particularly felicitous, which is why I find it difficult to decide which is intended; but the fact that the sentence seems to be about pedagogic approaches suggests that instruction is the subject, which would tip the scale toward an adjectival understanding.

But I have no confidence in that.

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