Wednesday, September 02, 2009

Do Universities Generate Agglomeration Spillovers?

The debate on social returns to universities is particularly important now given the pressure on public funding. The following study is of some relevance:

Do Universities Generate Agglomeration Spillovers? Evidence from Endowment Value Shocks
Shawn Kantor, Alexander Whalley
This paper quantifies the extent and magnitude of agglomeration spillovers from a formal institution whose sole mission is the creation and dissemination of knowledge -- the research university. We use the fact that universities follow a fixed endowment spending policy based on the market value of their endowments to identify the causal effect of the density of university activity on labor income in the non-education sector in large urban counties. Our instrument for university expenditures is based on the interaction between each university's initial endowment level at the start of the study period and the variation in stock market shocks over the course of the study period. We find modest but statistically significant spillover effects of university activity. The estimates indicate that a 10% increase in higher education spending increases local non-education sector labor income by about 0.5%.

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