Working Paper: NBER ID: w15299
Authors: Shawn Kantor; Alexander Whalley
Abstract: In this paper we quantify 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%. 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.
Keywords: agglomeration spillovers; endowment value shocks; higher education; local labor income
JEL Codes: I20; R12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| University activity (I23) | Productivity enhancement (O49) |
| University expenditures (I22) | Local non-education sector labor income (J39) |
| Higher education spending in urban counties (I23) | Local non-education sector labor income (J39) |
| University-generated patents (O34) | Spillover effects in firms (D21) |
| Stock market shocks (G10) | University expenditures (I22) |
| University expenditures (I22) | Local labor income growth rates (J39) |
| Initial endowment levels of universities (D29) | University expenditures (I22) |