When innovation plays such a major role in the financial success of a country, it stands to reason that the better your universities, the better a nations economy is likely to be.

A number of studies recently have explored the various factors that go into making a nation innovative, and the strength of their universities were undoubtedly important.

This was confirmed by a recent paper from a team of LSE academics, who trawled through data from UNESCO’s World Higher Education Database to plot the location of over 15,000 universities around the world over a 60 year period.

University growth = economic growth

The analysis found that there was a link between growth in the number of universities in an area, and the growth of that areas economy.  For instance, when universities doubled in number, the income of the region would grow by over 4% as a result.

Universities have clearly come a long way since the first was established 1,000 years ago, but this is one of the first attempts to directly connect their presence with the health of the economy.

The paper reveals that higher education is not only valuable in terms of securing higher salaries for graduates vs non-graduates but also in terms of the wider economy.  The study found that when university numbers increase, there is a significant rise in GDP per person, with this increase even spilling over into neighboring regions.

Differing boosts

Of course, not all universities give a region a similar boost, and research focused universities were found to be particularly potent, especially in technologically advanced economies.

In terms of cost-benefit analysis, the authors found that whilst it may cost £1.6 billion to build one extra university in each of the 10 parts of the UK, it would boost national income by 0.7%, or £11.3 billion, providing a clear benefit to the economy.

Interestingly, this benefit isn’t just gained by encouraging a lot of people, whether students or academics,  to move to the area, nor indeed the consumption that these people perform.  Instead, the team found that the economic boost was consistent even when population was controlled for.

A large part of this was due to the productivity gains companies observed when skilled graduates entered the workforce.  There was also a boost in innovation for companies that worked with universities.

What’s more, the boost to a region was not limited to economic, with the authors also suggesting that regions housing a university also had stronger pro-democracy views, even if the individual resident themselves didn’t have a university education.

Whether there is an upper limit at which point new universities fail to offer such strong benefits is not clear from the paper, but it would appear to suggest that there are some clear benefits to expanding the higher education supply in a region, which should provide policy makers with some food for thought.