Knowledge Spillovers from Research Universities: Evidence from Endowment Value Shocks

Abstract

We estimate the local spillovers from research university activity in a sample of urban counties. We use the fact that universities tend to follow a rigid endowment spending policy based on the market value of their endowments to identify the causal effect of university activity on labor income in the non-education sector. Our instrument for university expenditures is based on the interaction between each university's lagged endowment level and the variation in stock market shocks over time. We find statistically significant spillover effects from university activity, and the magnitude of the spillover is significantly larger when local universities are more research intensive or when firms are technologically closer to universities, as measured by labor market pooling and patent citations. The findings provide a rationale for place-based university policies, so long as they focus on industry fundamentals. The results also suggest that the longer-term effects that universities have on their local economies may grow over time as the composition of local industries evolve to take advantage of the knowledge spillovers we identify.

Wrapping it up in a person: Examining employment and earnings outcomes for Ph.D. recipients

“…Thus it has been difficult to capture the human dimension of the impact of research on the economy. What little evidence there is has been based on an analysis of patent clusters (2) (3), the geographic and industry placement of new PhDs (4)(5)(6), or on bibliometric approaches linking grants, patents and publications (7)(8). One noteworthy exception has been expensive - the United Kingdom spent over £34 million in explicit costs, and much more in implicit costs, to generate almost 7,000 case studies.…”

Does Knowledge Protection Benefit Shareholders? Evidence from Stock Market Reaction and Firm Investment in Knowledge Assets

“…Based on data from the National Science Foundation, we further construct a state-level knowledge intensity variable reflecting state industry-financed R&D expenditure at research intensive (doctoral granting) universities (INDUSTRY_FINANCED_RND). Prior research considers research universities as one important source of innovative knowledge and skilled labor for private enterprises in the area (e.g., see Zucker et al (1998), and Kantor and Whalley (2014)). Industry-financed R&D expenditure at local research intensive universities reflects the reliance of local industries on research institutes as a source of knowledge creation and innovation.…”

“…This result suggests that, as local industries in those states depend heavily on research universities as a source for innovative knowledge and skilled labor (see, e.g., Zucker, Darby, and Brewer (1998) and Kantor and Whalley (2014)), the rejection of the previously adopted IDD makes it easier for local industries to recruit employees with valuable knowledge from local research universities, which helps mitigate the negative impact of IDD rejection on shareholder value.…”

Research Funding and Regional Economies

“…However, much of the literature has been based on aggregate data with links inferred rather than directly measured (Hausman 2012;Kantor & Whalley 2014;Saha et al 2015). This paper uses extremely granular data about purchases made in the process of conducting research to directly examine the links between universities and businesses in three countries (France, Spain and the United States).…”

“…Part of the effect could be due to the effects of educational investments. Although it has been difficult to identify these relationships, work in Sweden has shown that universities have important effects on the productivity of workers (Andersson et al 2004) and work in the United States suggests that a 10% increase in higher education spending increases local non-education sector labor income by about 0.5% (Kantor & Whalley 2014).…”