Colleges Fuel Growth of Local Economies, Research Says
Posted By Eliana Osborn on September 2, 2016 at 5:26 pm
Colleges and universities in a community fuel the growth of its gross domestic product, and it’s not just through increased spending by all those students and faculty members that local economies expand. That’s according to a new working paper from the National Bureau of Economic Research finds.
Previous data has been focused on the United States – generally on individual schools and communities. A 2015 paper examined the impact of rural Oregon universities on local communities, finding a mutually beneficial relationship with increased diversity and stabilized economies. A 2005 paper published in Urban Studies found that it isn’t just large universities that make a difference; even small schools with commuter populations can revitalize local economies.
According to the NBER paper, 20% of young adults worldwide have access to higher education, up from just 1% in 1900. That has led to growth in universities in large and small communities, changing the way ideas spread across the planet. Inequalities exist, of course, and there are still wide swathes of people with limited ability for study. But more than ever before, more people can get more education.
The methodology to study local economies
The paper looks at 1,500 regions across 78 countries since 1950 and their economic development since 1950. One of the primary ways universities aid local communities is through human capital: a more skilled workforce and more workers generally as people come to the area to study. There also is greater demand for goods and services because of the university. Finally, the authors report finding more support for democratic ideals in university communities as well as greater innovation.
Each of these measures of growth have been shown in previous papers but with some caveats, so NBER attempted to tease out external factors and see what universities can genuinely provide to their areas controlling for those factors. “We show that university growth has a strong association with later GDP per capita growth at the sub-national level,” the study says. Additionally, “we find that a doubling of universities in a region is associated with over 4% higher GDP per capita.”
Another finding: There does not seem to be a finite effect—adding more schools continues to increase the benefits as “universities in neighboring regions or other regions in a country also affect a region’s growth, and there appears to be a spatial element to this, with larger effects for regions that are close together.”
The factors that many, especially Westerners, had suspected were leading the economic impact do play some role, the authors say: “We show that the university effect works through increasing the supply of human capital and also through raising innovation, but both these channels are small in magnitude. In addition, we find that universities appear to affect views on democracy even when we control.”
The primary issue is the education and ability to work, rather than the philosophical aspects of college.