Opening universities linked to increased GDP

Study suggests saturation point of higher education expansion is some way off

March 23, 2016
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Room for growth: expansion of higher education systems is likely to continue

Expansion of higher education systems around the world is likely to continue, according to a study that found a strong correlation between opening universities and significantly increased economic growth.

An analysis of data on 14,870 higher education institutions in 78 countries over six decades, presented at the annual conference of the Royal Economic Society, reveals that doubling the number of universities in a region results in a 4.7 per cent increase in gross domestic product per capita in that region within five years, on average.

John Van Reenen, professor of economics at the London School of Economics and Political Science, and Anna Valero, a research economist at LSE’s Centre for Economic Performance, found that opening universities had a positive impact not only in the “home” region but also in neighbouring areas.

They calculate that the increase in national GDP per person as a result of doubling the number of universities in just one region can be as high as 0.5 per cent, with the development of research-based universities offering PhDs in advanced Western economies appearing to have the greatest effect.

Professor Van Reenen told Times Higher Education that the findings were “consistent with the idea that there isn’t a natural block on wanting to expand the number of universities”. Looking at GDP gave a fuller picture of universities’ economic impact than simply looking at graduate salaries, he argued.

“A lot of people say there is no point expanding universities because there are no jobs for students to go to and you are training people to get PhDs [while they] just drive taxis,” Professor Van Reenen said. “The evidence here suggests that there is room for expansion, consistent with what governments all over the world are doing.”

Professor Van Reenen and Ms Valero based their analysis on data drawn from the World Higher Education Database, compiled by the United Nations Educational, Scientific and Cultural Organization, covering 1950 to 2010. The findings were robust when population and geographical factors were controlled for.

These benefits have to be weighed against the cost of operating new higher education institutions, so Professor Van Reenen and Ms Valero applied their model to the UK as a case study. If one university was added to each of the country’s 10 regions, the increase in GDP per capita would be 0.7 per cent, or £11.3 billion per year in 2010 figures.

In 2009-10, the average annual expenditure per institution was £160 million, so the total additional cost would likely be £1.6 billion, the paper says, allowing for a “large margin” of potential benefits.

The study also explores what it is about universities that is likely to contribute to economic growth, and finds that improvements in workforce skill levels, and improved research and innovation, as measured by patents, were likely to be key. In the longer term, expansion of higher education systems was also associated with greater prevalence of pro-democracy views among individuals.

Professor Van Reenen said that the effect of opening universities was bigger than he would have expected.

“I think it makes sense because universities have several different ways they can have positive impact: through undergraduate skills, through graduates skills, through innovation and also through consultancy,” he said.

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