Higher education and economic growth: A longitudinal study of European regions 2000–2017
Introduction
Regional economic disparity is, nowadays, a central
issue in European countries, where areas that are predominantly urban correspond to the most
developed regions, and rural and remote territories are those struggling the most. For
instance, between 2000 and 2013, the OECD regions with the fastest growth in GDP -
representing 20% of the total population - contributed on average to 36% of national GDP
growth [1].
In this context, studying the factors that influence
regional disparities is central to addressing the governments’ preoccupation with
understanding the causes of economic differences between regions [2,3]. Among the possible
determinants of regional inequalities, education plays a central role - see also the
interesting discussion in Ref. [4]. Economic theory (i.e. Human Capital Theory and New Growth
Economics Theory) traditionally defines education as a crucial determinant of economic
development, both nationally and regionally (see, among others, [[5], [6], [7]]). Among the
levels of education, attention has recently focused on higher education (HE), considered the
most successful in providing the right skills to compete in the new global economy and respond
to technological transformation [8]. Universities are under increasing public pressure to
contribute towards local development in most countries [9]. In other words, higher education
is expected to be the key level that contributes most to economic growth and which is best
placed to explain economic differences between regions [10].
Although much debate surrounds the relationship
between human capital and economic growth, the literature has yet to provide insights into the
specific role universities have in nurturing economic growth [11]. This lack of knowledge
becomes a central issue when a regional perspective is adopted. Heavy flows of interregional
migration may lead to a significant discrepancy between human capital which contributes to the
regional economy and human capital produced by the institutions of education in a given region
[8]. From a policy perspective, it is important to understand which specific actions (led by
universities) are conducive to higher economic development [12]. The production of research
may indeed be the main factor - by spilling over into local companies and influencing their
ability to foster innovation - or, instead, it may be all the activity connected to teaching
that increases average human capital in the territory. The “third mission” may instead be more
important, because it encourages continuous exchange of discoveries, new knowledge and
practices between academia and industry. The relationships between all these factors must be
thoroughly understood by policy-makers wanting to design specific policies that can drive
local economic growth, by leveraging on the opportunities offered by universities operating in
the local geographical space.
The paper addresses this issue by analysing the
contribution of regional Higher Education Systems (HESs), where HES can be defined as a group
of universities or academic institutions that operate within a given region (see Ref. [13]).
The following research question is examined in particular:
- What is the impact of the characteristics of regional HESs on economic growth in European regions?
The research question is addressed through an analysis
of 284 European regions (NUTS 21) over a timespan of 18 years - from 2000 to 2017.
The paper provides a theoretical framework that models the potential contribution that HESs
have on regional economic growth through various channels (specifically, the human capital,
innovation and demand channels). Based on this framework, such contribution to regional
economic growth is estimated by conducting a sys-GMM econometric model. The empirical analysis
measures HESs in a comprehensive way, considering both qualitative and quantitative
properties. The indicators included in the model are contained in a novel dataset that has
been developed for the specific purpose of this research. This innovative, integrated dataset
is a by-product of our contribution, and its creation has paved the way for future use in
academic research.
The present paper introduces an innovation to the
current knowledge in the field in three main ways. Firstly, while previous literature has
addressed the role played by R&D and innovation on economic development in regions across
Europe (see Ref. [14]), no attempts have been made so far to focus on the role that HE
institutions and their respective actions have within this process.2 Secondly, the
empirical analysis covers almost 20 years, providing an extensive picture of the medium-term
effects that universities have on economic growth. While recent studies have investigated the
nexus between local universities and economic growth in specific contexts (see Ref. [15]; for
an analysis of the situation in Russia), the available data only covers a short period of
time. Higher education and economic actions and policies, however, only reveal their effects
over time - so the present study is better suited to uncovering the real relationships between
a university's performance and its impact on the local economy. Thirdly, the analysis also has
the aim of opening the “black-box” of the universities' economic impact, by formulating a
comprehensive theoretical framework that describes the main channel whereby HE institutions
can have an impact on their economic environment. With this purpose, the empirical exercise is
able to detect patterns and effects that would be otherwise hidden in more simplistic
approaches and analyses.
The paper is structured as follows. Section §2
contains a review of the key literature that explicitly examines the relationships between
universities and regional economic growth, and sets out the theoretical framework. Section §3
focuses on the econometric model, presenting the variables included in the empirical analysis,
which are described together with the novel dataset in Section §4. Section §5 contains the
main findings of the study, which are then discussed in Section §6, along with their
contributions to research and the policy implications.
The literature provides few empirical
contributions on the effect produced by universities on the regions’ economic development
[11,16]. These works mainly concentrate on metropolitan areas within one country. Lendel
[17] found that research universities in the USA, by their very presence, have a positive
impact on the employment and economic growth of the relative metropolitan area. Goldstein
and Drucker [18] also studied US metropolitan areas, finding that universities contribute
significantly to the economy only when small areas are considered. Brenner and Schlump
[20] and Schubert and Kroll [16] both investigated the situation in Germany, highlighting
the importance of universities in influencing growth in employment and GDP per capita.
Lastly, Agasisti et al. [12] analysed the contribution of universities to economic growth
in 46 Italian labour market areas, finding a positive correlation with the presence of
efficient universities.
However, these studies all focus on one country
and are not able to provide generalisable answers concerning the essential role played by
HESs in bolstering economic development in the areas where they operate. Moreover, our
empirical results at the metropolitan level can differ from those relating to regions, for
the same reasons that the model applied nation-wide is theoretically different from those
at regional level (see Ref. [8]).
Empirical studies that employ large cross-country
comparisons to investigate the regional contribution provided by universities are rare. To
our knowledge, among the most recent works, only the paper by Valero and Van Reenen [11]
deals with this issue. The authors analysed 1500 regions across 78 countries and found
that the presence of universities in the region has a positive influence on local GDP
growth per capita. More specifically, a 10% increase in the number of universities
generates a higher GDP per capita of around 0.4% after five years, as the data is examined
in five-year intervals. Their analysis examined the average effect brought about by
universities through merely being present in the region, without taking into account the
factors that characterise these institutions, such as their size or ability/output in
teaching and research.
Nevertheless, the factors that determine
heterogeneity between HESs can significantly affect economic impact. In their work,
Eriksson and Forslund [21]; for example, found that the simple presence of universities
does not, on its own, contribute to growth in employment in the various Swedish regions,
which is rather affected by specific clusters of higher education institutions.
The present paper intends to address this lack of
research by modelling the heterogeneity of HESs in a comprehensive way, i.e. by
investigating the role that specific features of the HESs themselves play in affecting
economic development.
The analysis is based on a theoretical framework,
given in Fig. 1, that models the relationships between HESs and economic growth. This
framework provides a comprehensive picture that takes into account the contribution
generated by all three spheres in which universities operate: teaching, research and their
“third mission” [22]. On reviewing the literature (see, among others [11,23,24]), we
identified three main channels through which HESs are able to affect regional economic
growth. These channels refer to human capital, innovation and demand (for local goods and
services), and are presented separately in the next subsections.
There is an extensive body of literature dealing
with the relationship between human capital (HC) and economic growth. The major part of
this literature has been developed in the field of Human Capital Theory. The
relationship between HC and economic growth is explicitly expressed in the macroeconomic
model set out in New Growth Theory (see Refs. [5,6,25]). Based on the main assumption
that economic growth is endogenously generated, new growth theory states that human
capital has a crucial role in increasing a nation's economic growth rate.
Macroeconomic analyses generally find that human
capital - usually measured in years of schooling - produces a positive effect on
economic growth (see, for instance, Refs. [6,26]). The economic contribution of human
capital seems to be particularly significant in developing countries, where investing in
human capital could potentially generate a greater effect on economic development than
investing in physical capital [27].
Even though human capital literature has
traditionally focused on primary and secondary education, over the last decade, there
has been growing attention to the contribution of higher education. Evidence in this
field usually highlights the fact that HE attainment produces a positive effect on
economic growth (see, among others [19,28,29]), even if significant contributions are
not confirmed in all cases (see Refs. [31,32]).
According to studies into regional development,
the relationship between human capital and regional economic development is different
from the one at national level [33]. Since regions have no proper boundaries, the impact
of interregional migration is significant, and this movement of people, in turn, implies
an “endogeneity” framework that is substantially different from the one at national
level. The traditional endogenous growth model assumes that national aggregated growth
is endogenously defined, i.e. generated internally within a “closed-country framework”.
On the contrary, in regional development models, the “endogeneity” is not limited to the
region itself but can generate a spillover [8]. This mechanism is the reason why there
is interest in empirical investigation into the link between HC and economic growth at
the regional level. Generally, empirical analyses tend to confirm the importance of HC
in increasing regional GDP per capita (see Refs. [7,34,35]) and, therefore, in
explaining interregional economic disparities [36].
The link between universities and human capital
also contributes significantly towards our understanding of the relationship between
HESs and regional economy. Even when there is a presumed positive effect, the HESs may
not apparently affect regional GDP per capita in any great measure, due to the lack of
significant relationships between universities and local HC. Despite the large body of
literature on HC, only a few papers explicitly address the link between universities and
human capital. Abel and Deitz [37] explored this relationship in US metropolitan areas,
finding that the number of graduates produced a small but positive effect on local human
capital stock. The authors attributed the weakness of this link to considerable
interregional migration flows. In addition, their results highlighted the importance of
controlling for university heterogeneity; indeed, the authors found that degrees in
different subjects affect human capital stock in different ways. Santoalha et al. [38]
also investigated the relationship between HES heterogeneity and local human capital,
finding that diversification among universities plays an important role in generating
diverse human capital.
Finally, Lille and Roigas [39] investigated the
relationship between economic growth in European regions and human capital produced by
universities in the territory, measured as the share of tertiary students over the total
population. Their results showed that human capital produced by universities has a
limited affect, and that it takes time for this HC to influence the region's economic
growth. As pointed out by Abel and Deitz [37]; the outgoing flow of young graduates
could explain the small effect associated with the percentage of HE students.
Regional development literature suggests that
innovation and R&D spillover is important in promoting regional economic growth [40]. At
the same time, universities are thought to play a crucial role in determining local and
regional innovation [36,41]. Consequently, HESs can also contribute to local economic
performance through the “innovation channel” [11]. This channel should capture the
effect of knowledge creation associated with research and technological transfer (see
Ref. [42]). Research can contribute to knowledge spillover through academic publications
(see Refs. [43]); for example, proximity to universities could be relevant for accessing
research networks [44]. In this context, the quality of research plays a particularly
relevant function. Hegde [45] found evidence of a positive association between the
quality of academic research and regional innovation in the USA. In their study of
European regions, Malva and Carree [46] found that innovative regions are associated
with university departments that conduct high-quality research. Moreover, the quality of
research, especially in the field of social sciences, tends to attract innovative
start-ups [47].
As a further point, third-mission activity is
associated with the patenting of ideas and the creation of business incubators and
spin-offs [12,48]. [49]; in fact, found empirical evidence that university-industry
relationships are a core driver of regional innovation and economic growth.
The demand channel is meant to capture the
influence of HESs on the local economy, generated by university expenditure and relative
multiplier effects (see Ref. [50]). Universities are labour-intensive enterprises [51]
that generate direct and indirect demand for local goods and services, encouraging the
creation of new businesses in the area [24]. By employing academic and non-academic
staff, universities also engender an increase in local income. The effects of the demand
channel are particularly evident when a new university is established in the area or an
existing one expands rapidly in size [23]. HES size is relevant, and growth in student
and staff numbers is typically associated with an increase in the contribution of
universities to regional economy. This “direct” channel, however, is only expected to
generate a short-term effect on economic growth (through expenditure in a given year),
contrary to the human capital and innovation channels, which can be associated to
longer-term effects [8].
This paper intends to study the relationships
between higher education systems and economic growth. Following this purpose and
restricting the complexity of the model, the theoretical framework in Fig. 1 does not
show the relationships between channels explicitly. Nevertheless, the three channels
(human capital, innovation and demand) are likely to be inter-related. For instance, by
recruiting academic staff, universities can attract highly educated people to the region
and increase, therefore, human capital in the territory. Moreover, highly educated
workers can foster innovation in the region and, vice versa, growth in innovative
sectors can increase the demand for skilled people. This is confirmed by Ehrlich et al.
[52]; who found evidence of human capital having an indirect impact on economic growth,
as the effect of entrepreneurial human capital driving the innovation process. Section
§A1 in the Annex provides empirical evidence on the relationships between the three
channels. The analysis confirms significant correlations between the indicators used to
model the channels, highlighting, in particular, a strong link between the innovation
channel and that of human capital (see Table A1 for more details).
Section snippets
Modelling and measuring the characteristics and performance of HESs
To estimate the impact of HESs on the value of a
regional economy, alongside taking into account the physical presence of universities and
higher education institutions in the region, this paper also considers information
concerning their heterogeneity and quality. The first step for this purpose is to select a
number of different indicators and measures that describe the higher education systems.
The variables used in the empirical analysis refer to six dimensions: (1) concentration of
The dataset
The empirical analysis is based on a novel dataset
created for the specific purposes of this paper. Data were gathered for 284 regions in 30
European countries (the 28 EU members plus Norway and Switzerland) and refer to a lengthy
timespan, from 1995 to 2017. However, as shown in the second column of Table 1, not all
the variables are available for the entire timespan. Migration rates and HE attainment are
only recorded from 2000 onwards. For this reason, the empirical estimations discussed in
Baseline results – the average effect of HESs on economic development
Table 3 shows the results of six different models,
which gradually include all the independent variables of the baseline model in equation
(1), following a stepwise approach. The model in the first column (model 1) is the
simplest model and only examines the effect of regional controls through an OLS regression
without including country fixed effects. From column (2) onwards, the models are estimated
through a sys-GMM and include country fixed effects. These models detect a convergence
rate for
Discussion, policy messages and concluding remarks
This paper analyses the contribution of regional
HESs in 284 European regions (NUTS 2). The aim of the work arises from the general lack of
empirical studies on the economic contribution of universities to regional development. It
also deals with the limitations of the existing literature, which does not usually take
account of HES heterogeneity or HESs specific characteristics. With this purpose in mind,
this paper proposes an empirical framework that models regional HESs in a comprehensive
CRediT authorship contribution statement
Tommaso Agasisti:
Conceptualization, Methodology, Writing - review & editing, Supervision. Alice
Bertoletti: Conceptualization, Methodology, Data curation, Investigation, Formal
analysis, Writing - original draft.
Acknowledgements
We are grateful to Geraint Johnes for his detailed,
useful comments and suggestions and to Enrico Morgantini and Samuele Paredi for their
research assistance. Moreover, we would like to thank the two anonymous referees for useful
comments. A preliminary version of this work was presented at 5th LEER Conference on
Education Economics, Leuven (BE) April 2019; XXVIII AEDE Meeting, Las Palmas de Gran Canaria
(ES) June 2019; 7th Workshop on Efficiency in Education, Health and Other Public Services,
Tommaso Agasisti is Full
Professor at Politecnico di Milano School of Management. Since 2012, he is the co-delegate
of the Area I&PA (Institutions & Public Administrations), MIP Politecnico di Milano
Graduate School of Business. He is the Associate Editor of the academic journal Higher
Education Quarterly, and member of the editorial boards of Educational Researcher,
Tertiary Education and Management, International Journal of Educational Management
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Tommaso Agasisti is Full
Professor at Politecnico di Milano School of Management. Since 2012, he is the co-delegate of
the Area I&PA (Institutions & Public Administrations), MIP Politecnico di Milano Graduate School
of Business. He is the Associate Editor of the academic journal Higher Education Quarterly, and
member of the editorial boards of Educational Researcher, Tertiary Education and Management,
International Journal of Educational Management
Alice Bertoletti is a PhD
candidate in Management Engineering at Politecnico di Milano, Department of Management,
Economics and Industrial Engineering. Her dissertation aims at evaluating the impact of higher
education systems on regional economic development. Her research interests also involve
performance evaluation in public sector in higher education systems and efficiency in education.
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