The policy examples from this article is under the spotlight during the OECD Local Development Forum, which took place in Cork, Ireland, on 15-17 June 2022. This event was organised as part of the Local Employment and Economic Development programme (LEED) Programme, which marked its 40th anniversary this year. Since 1982, the mission of LEED has been to create good jobs in great places.
Our universities play a special role in generating the skills and new ideas that drive national economic and social progress. But can they do more to lift their local communities?
There are many examples of prosperous areas with a strong university sector, including the Silicon Valley in the United States, or the Cambridge Cluster in the UK. But it is not always clear whether the university drives – or itself benefits from – local economic success. There could be other factors driving the growth of both local economies and universities. Indeed, industry success may stimulate university activity rather than the other way round. If there are benefits, are these principally from investment in innovation or skills? We need to disentangle these for universities to drive local growth and help narrow gaps.
Boosting local growth
Our recent paper looks at the regional economic impact of opening new universities in 1,500 regions across 78 countries during the second half of the 20th century. We found university expansion to be positively and robustly associated with the future growth of regional GDP per capita, even after controlling for a host of regional trends.
Our estimates imply that a 10% increase in the number of universities per capita in a region is associated with 0.4% higher future GDP per capita. We also found evidence that neighbouring regions benefit, suggesting that distance does really matter.Anna Valero
This effect was not simply driven by direct expenditures of the university, its staff and its students. An increased supply of human capital and greater innovation help us explain these results.
We also found that specialisms matter – at least for the advanced economies of the US, UK, France and Germany. In these countries, local economic impacts were stronger for more research intensive (PhD granting) universities. This suggests that the research channel might be more important for countries closer to the technology frontier. It backs up other work showing the positive impacts from university research spending on local firms, which are stronger for more research intensive universities and when local firms are well matched to university specialisms.
Improving diffusion in less innovative regions
What can policy makers do to maximise such positive impacts? An OECD report on university-industry collaboration set out the key levels, including grants, career incentives for academics, IP regulations . Broader OECD work points to the need for local mechanisms to drive impact, including outreach and networking as well as efforts to match university investment and policies to existing local needs and specialisms – these are the focus of the new EECOLE network.
Unfortunately, this means it is highly unlikely that innovative clusters can be “manufactured” in areas without strong underlying capabilities (including infrastructure and skills) and high-value specialisms to complement. Instead, lagging places may benefit more from a stronger focus on basic skills and measures to improve the diffusion of productivity enhancing technologies and organisational practices, at least in the short-term.
Universities can add value here too. There is evidence that universities can help boost local skills and management practices, which play a significant role in driving productivity. These skills and practices may be even more important for lagging places in the aftermath of a global pandemic that has prompted or accelerated the adoption of new digital technologies and business models.
Already there is evidence that such activities have been more likely in larger, more digitised firms. There is therefore a risk that the already large gaps between the most and the least productive firms (and regions) could widen further.
Skills constraints tend to be a key barrier to adoption in business surveys (nearly three quarters of firms highlighting a lack of skills as a barrier to process innovation in our most recent survey, and this was the most cited barrier). Universities (as well as other higher education institutions) can and should play a key role in addressing these in the places that need them most.
Beyond providing skilled graduates, universities interact with local firms and other actors in a number of ways that can aid diffusion – for example via consultancy or training activities. A current UK government programme involves the delivery of managerial training by business schools across the country. We need more evidence at the micro level on what works in this regard, and on the effectiveness of business support policies for innovation and entrepreneurship more generally.
Rising to the challenge
Our universities are playing a key role in tackling global challenges. They deliver and diffuse innovations – including the vaccines that paved the way for a recovery from the pandemic, and the technological and societal solutions to climate change. They generate skills – to deliver on Enhanced Net Zero commitments and the digital transition. Increasingly they are now helping tackle local challenges too.
Effective partnerships between universities, industry and local leaders can act as a bridge between the local and the global, enabling regions to evolve existing comparative advantages to meet growing global demand for “clean” or digital solutions. They can also help to implement local decarbonisation plans, creating more liveable cities with a host of co-benefits such as cleaner air and improved health. Universities can therefore play a unique role in the recovery – solving global challenges while driving local growth.
Read more on OECD Higher Education work here.
Anna Valero is a Senior Policy Fellow at the LSE's Centre for Economic Performance (CEP), Deputy Director of the Programme on Innovation and Diffusion (POID) and an Associate of the Grantham Research Institute. Her research is focused on the drivers of productivity and innovation in firms and regions, and in particular the role of skills and universities in explaining differences in economic performance. She also works on UK growth policy more broadly, with a focus on research to inform policies for environmentally sustainable growth and jobs. Anna completed an ESRC Innovation Fellowship at the LSE in 2021 and obtained a PhD in Economics at the LSE in 2018. Previously, she was a manager at Deloitte's Economic Consulting practice in London where she qualified as an ACA.