Do colleges and universities increase their region's human capital?
ABSTRACT We investigate whether the degree production and research and development (R&D) activities of colleges and universities are related to the amount and types of human capital present in the metropolitan areas where the institutions are located. We find that degree production has only a small positive relationship with local stocks of human capital, suggesting that migration plays an important role in the geographic distribution of human capital. Moreover, we show that spillovers from academic R&D activities tilt the structure of local labor markets toward occupations requiring innovation and technical training. These findings demonstrate that colleges and universities raise local human capital levels by increasing both the supply of and demand for skill.
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ABSTRACT: A long stream of research has documented the positive effects that patents bring about to emerging firms in high technology industries. The general consensus is that patents contribute to firm growth because they confer monopolistic market rights, offer protection from competitors, increase the negotiating position of patent holders and other benefits. What has received relatively less attention in the literature is whether patents act as a signal that attracts investors such as venture capital firms. The handful of studies that have addressed that question has not analyzed whether the signaling function of patents decreases after the initial attraction of venture capital, as information asymmetries between investors and target firms reduce. In this study we hypothesize that patent activity has a signaling value that diminishes once information asymmetries between investors and funded firms lessen. To study our proposition we draw upon a longitudinal dataset of more than 580 U.S. – based biotechnology firms to empirically demonstrate that biotechnology firms that have submitted patent applications substantially increase the level of funding they receive for their first round of financing. In line with a reduction of information asymmetries once the initial investment has materialized, patent applications and granted patents have no effect on the growth of venture capital funds raised during the second round of financing. We conclude the study with a discussion of avenues for new research, implications for policy makers that consider the usefulness of the current patent system and with insights that can be employed by managers of firms in knowledge intensive areas such as biotechnology.Research Policy 01/2014; · 2.85 Impact Factor
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ABSTRACT: A long stream of academic literature has established that public funding towards research and development matters for economic growth because it relates to increases in innovation, productivity and the like. The impact of public funding on the creation of new firms has received less attention in this literature despite theoretical constructs that support such association. In the present paper we study whether indeed there is a relationship between public research funds and local firm births in the context of the U.S. biotechnology industry. In doing so, we introduce a number of changes that strengthen the robustness of our findings when compared with existing literature. These changes include a direct measure of research expenditures and a considerably lengthier longitudinal dataset which allows us to capture a structural relationship and not a chance event. We empirically demonstrate that increases in the level of research funding from the National Institutes of Health towards biotechnology associate with increases in the number of biotechnology firm births at the Metropolitan Statistical Area level. Further, we reveal that public funds towards established firms associate with local firm births considerably more strongly when compared with funds towards universities and research institutes/hospitals. We conclude the paper with academic and policy implications of the present work that highlight the complexity of factors that underlie the creation of local firms in high technology industries.Research Policy. 01/2014; 43(1):121–137.
Federal Reserve Bank of New York
Do Colleges and Universities Increase
Their Region’s Human Capital?
Jaison R. Abel
Staff Report no. 401
Revised March 2011
This paper presents preliminary findings and is being distributed to economists
and other interested readers solely to stimulate discussion and elicit comments.
The views expressed in the paper are those of the authors and are not necessarily
reflective of views at the Federal Reserve Bank of New York or the Federal
Reserve System. Any errors or omissions are the responsibility of the authors.
Do Colleges and Universities Increase Their Region’s Human Capital?
Jaison R. Abel and Richard Deitz
Federal Reserve Bank of New York Staff Reports, no. 401
October 2009; revised March 2011
JEL classification: R10, J24, O18
We investigate whether the degree production and research and development (R&D)
activities of colleges and universities are related to the amount and types of human capital
present in the metropolitan areas where the institutions are located. Our results indicate
only a small positive relationship exists between a metropolitan area’s production and
stock of human capital, suggesting that migration plays an important role in the
geographic distribution of human capital. We also find that academic R&D activities
increase local human capital levels, suggesting that spillovers from such activities can
raise the demand for human capital. Consistent with these results, we show that
metropolitan areas with more higher education activity tend to have a larger share of
workers in high human capital occupations. Thus, this research indicates that colleges and
universities can raise local human capital levels by increasing both the supply of and
demand for skill.
Key words: human capital, higher education, knowledge spillovers, local economic
Abel: Federal Reserve Bank of New York (e-mail: firstname.lastname@example.org). Deitz: Federal
Reserve Bank of New York (e-mail: email@example.com). The views expressed in this paper
are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of
New York or the Federal Reserve System.
Colleges and universities in the United States are increasingly being viewed as
engines of local economic development. This trend has been driven by the economic
success stories of places such as Silicon Valley and the Route 128 corridor around
Boston, as well as the more general recognition of the transition now underway towards a
more knowledge-based economy. Furthermore, there appears to be a widespread belief
among policymakers, particularly in declining regions, that the retention of graduates
from local colleges and universities is a promising pathway to cure their economic ills.
Indeed, the amount of human capital in a region is one the strongest predictors of
sustained economic vitality. Studies of regional economies have linked higher levels of
human capital to increases in population and employment growth, wages, income, and
innovation (Glaeser, Scheinkman, and Shleifer, 1995; Simon, 1998; Carlino, Chatterjee,
and Hunt, 2007; Florida, Mellander, and Stolarick, 2008). Moreover, larger amounts of
human capital within a region have been shown to lead to more rapid reinvention and
long-run economic growth (Glaeser and Saiz, 2004; Glaeser, 2005). These empirical
findings are explained by the fact that human capital increases individual-level
productivity and idea generation (Becker, 1964). Thus, by extension, a higher level of
human capital within a region raises regional productivity. In addition, the concentration
of human capital within a region may facilitate knowledge spillovers, which further
enhance regional productivity, fuel innovation, and promote growth (Marshall, 1890;
Jacobs, 1969; Lucas, 1988; Romer, 1990; Rauch, 1993; Moretti, 2004).
Given the importance of human capital to the economic performance of regional
economies, there is surprisingly little research analyzing the factors that drive differences
in human capital accumulation across space. This issue is of particular concern as recent
research has demonstrated that a divergence in human capital levels has occurred across
cities over the past several decades (Berry and Glaeser, 2005). The objective of this paper
is to shed some light on this issue by analyzing whether activities performed by colleges
and universities (“higher education activities”) are related to the amount and types of
human capital located in metropolitan areas.
We consider two types of higher education activities that have the potential to
raise local human capital levels. First, colleges and universities can increase the local
supply of human capital through the production of skilled labor. Newly minted graduates
directly raise the human capital level in a region if they remain in the area and enter the
local labor market. However, because college graduates are highly mobile (Kodrzycki,
2001; Faggian, McCann, and Sheppard, 2007; Whisler et al., 2008), it is not obvious that
regions producing more graduates will also have higher human capital levels as a
complex set of labor supply and demand factors are at work. Second, much of the
research and development (R&D) activity in the United States occurs at colleges and
universities. Such activities can also raise local human capital levels if there are spillovers
into the local economy that increase the demand for human capital, whether such human
capital is produced locally or not.
While the pathways through which these higher education activities can act to
raise local human capital levels are clear, systematic empirical evidence documenting the
existence and magnitude of such relationships is scarce. Because state governments are
an important source of funding for U.S. higher education institutions, much of the
existing literature has attempted to examine the relationship between the production of
degrees and stock of college graduates from the perspective of a state government
analyzing the return on its investment (Bound et al., 2004; Groen, 2004). From the
standpoint of local economic development, however, a state may not be a meaningful unit
of measure because it is often too large to capture the local labor markets in which
colleges and universities are located. Moreover, while these studies provide insight into
the extent to which colleges and universities influence the supply side of the labor
market, they do not consider the role colleges and universities play in shaping the local
demand for human capital through the spillovers they can create.
Indeed, there is mounting evidence indicating that highly localized spillovers exist
between university research and high technology innovative activity (Jaffe, 1989; Acs,
Audretsch, and Feldman, 1991; Jaffe, Trajtenberg, and Henderson, 1993; Anselin, Varga,
and Acs, 1997; Varga, 2000; Adams, 2002). Such spillovers can alter the composition of
local labor markets by increasing the demand for specialized skills and by attracting
business activity, such as start up firms, seeking to gain access to academic R&D or
human capital (Beeson and Montgomery, 1993; Audretsch, Lehmann, and Warning,
2005; Woodward, Figueiredo, and Guimaraes, 2006). While the existing literature
demonstrates the importance of colleges and universities to specific industries,
particularly those utilizing science and technology, little is known about the extent to
which the activities of colleges and universities influence local economic development
more generally. Recent research by Andersson, Quigley, and Wilhelmsson (2004, 2009),
showing that the decentralization of higher education in Sweden yielded regional and
national productivity benefits, has started to fill this void in the literature. However, this
work emphasizes the research dimension of universities, rather than the broader set of
higher education activities.
By analyzing the relationships that exist between the activities performed by
colleges and universities and local human capital levels, this paper extends the existing