Tuesday, November 03, 2009

Do Universities Generate Agglomeration Spillovers? Evidence from Endowment Value Shocks

Shawn Kantor, Alexander Whalley (August, 2009): NBER Working Paper No. 15299

"...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. ... As the implied elasticity is no larger than what previous work finds for agglomeration spillovers arising from local economic activity in general, university activity does not appear to make a place any more productive than other forms of economic activity. We do find, however, that the magnitude of the spillover is significantly larger for firms that are technologically closer to universities in terms of citing patents generated by universities in their own patents and sharing a labor market with higher education."

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