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The role of universities in local economic development: A
literature review
Vikas Kumar1*, Archana Kumari1, Mohammed Saad1
1 Bristol Business School, University of the West of England, Bristol, BS16 1QY
* Corresponding author email: Vikas.Kumar@uwe.ac.uk
Abstract
Over the last few decades there has been a growing interest among researchers to
explore the role of universities to wider societies. Nowadays universities are no
longer just seen as an institution that is engaged in delivering knowledge to new
generations rather they are now seen as institutions that have wider impact on
society and economies at local and national level. This study therefore sets out to
provide a general overview of the role of universities in local economic development
by randomly reviewing literature. The study focuses on three key aspects: university-
industry relationship; entrepreneurial universities; and its contribution to regional
economy. The study shows that universities play a major role in shaping regional
economy where regional government policy is a key to its integration with industries.
The study also points out that there is a need to push more entrepreneurial activities
as it promotes innovation and regional development. Further study also reveals that
empirical studies are required to investigate the links between universities and local
economic development.
Key words: University-industry partnership; innovation; economic development;
local economy
Introduction
In the current era of globalization and intense competition organizations are striving
hard to compete and be on the path of sustainable growth. Their survival to a large
extent hinges on the technological dynamism and their capacity to nurture innovation
(Hershberg, 2007). Innovation, therefore, emerges as a significant factor promoting
organizational growth and ultimately contributes to the economic growth of a region.
Research indicates that universities play a central role in promoting innovation in
organizations through close industry collaboration. Hershberg (2007) reports that
governments around the globe are slowly realizing the need to strengthen or build
research capabilities in basic research and also in technology. They also report that
the presence of research-oriented universities can assist geographically proximate
firms directly through the provision of educated workers and indirectly by myriad
externalities. This was also echoed by several other researchers such as Siegel et
al. (2004), Mowery and Sampat (2005), Bercovitz and Feldman (2006), and more
recently by Karatzoglou (2013).
Research evidence shows that governments throughout the industrialized world
have launched numerous initiatives since the 1970s to link universities to industrial
innovation (Mowery and Sampat, 2005). Geuna (1998) and Bercovitz and Feldman
(2006) report that university–industry collaboration has intensified with rapid
technological advancements, growing scientific and technical content of all types of
industrial production, the need for new sources of academic research funding, and
prominence of government policies aimed at raising the economic returns of publicly
funded research by stimulating university technology-transfer. These research
evidences show the significance of university industry partnership and how it can
contribute to the local economic development (Dumais et al., 1997, Gaspar and
Glaeser, 1998, Kim, 2000, Hershberg, 2007). Research also indicates that several
researchers have attempted to address the importance of this partnership and its
linkages to local economic development. However, there is a lack of studies that
pulls together key findings and sets out the future research direction that needs more
attention from researchers.
As it is evident that universities play a significant role in shaping the economy of a
region; this paper sets out to review randomly selected papers around this research
domain. The paper sets out to investigate how university-industry partnership has
evolved over the years? What impact it had on local economic development? How
university-industry partnership promotes innovation? The next section will explore
the university-industry partnership and its benefits to society and economy.
Thereafter, the role of entrepreneurial universities will be explored. Finally the impact
of universities on regional economies will be explored in detail. Finally the paper will
conclude by identifying a set of research questions that demand further investigation.
University-Industry Relationship
A number of research scholars (Etzkowitz, 2002; Etzkowitz et al., 2000; Viale and
Etzkowitz, 2004) have advocated direct links between university and industry to
maximize knowledge capitalization. Universities and industries collaborate for mutual
benefits that also generate opportunities for innovation. Poyago-Theotoky et al.
(2002) in their study identified that the type of partnership and interactions between
industry and universities depends on the contribution and motivation of both parties.
The motivation of the universities to link with industries and vice versa has been
studied by several researchers such as Lee (2000) and Zaky and El-Faham (1998).
The study by Lee (2000) showed that the primary motive of collaboration for
industrial firms is access to new knowledge. The study further suggested that the
other reasons for the collaboration between industry and university links to obtaining
funds for equipment and research assistants, the opportunity to start their research
project, the possibility to test practical applications of their theories, and the
opportunity to obtain funds for their own research. Around 94% of the universities
and 91% of the companies surveyed by Lee (2000) agreed that university–industry
collaboration should either grow or at least maintain its present level. A research by
Hanel and St-Pierre (2006) suggests that collaboration with universities has a
positive impact on the originality of innovations and their contribution to the
perceived economic performance of the innovating firm such as to maintain their
competitive position, their profit margins, increase in their share of the international
market and their increase of profitability. These research findings clearly indicate that
university industry collaboration has numerous mutual benefits which ultimately
contribute to the economic development of the region.
Bercovitz and Feldman (2006) provided a conceptual framework to analyse the
university–industry relationships (Figure 1). The framework consisted of transactions
at the core of the university–industry relationships, an individual researcher, firm
characteristics, and university technology transfer strategy and structure. They
suggested that the legal, economic, and policy environments that comprise the
system of innovation determine the rate and type of university knowledge production
and thereby influence the rate of technological change. It is clear from the framework
that university-industry collaboration promotes mutual knowledge exchange which
forms the basis for new innovations. In addition, framework also suggests that policy
environment and legal framework plays a significant role in developing the university-
industry relationship. Saad (2004) emphasized that policy in developing countries
should seek to promote learning and innovation through an effective system of
interactions between and within the main components of the triple helix model,
namely government, university and industry. In another study Saad et al. (2007)
promoted triple helix model of innovation in which universities, industry, government
and non-government organizations feature as principal actors in the national
innovation system. Their work also shows that major policy initiative is needed in
developing countries to put the national system of innovation in place. These findings
show that a greater coordination is needed between university and industry to
promote supportive environment for innovation.
Figure: University–industry relationship evolutionary schema
(Source: Bercovitz and Feldmann, 2006)
Entrepreneurial Universities
As indicated in previous sections governments around the globe are nowadays
promoting entrepreneurial universities to stimulate innovation and new
entrepreneurs. As a result of this push by the governments, the development of
entrepreneurial skills among students through educational program has become
important for the recent innovation focused economies (Gorman et al., 1997). In line
with the shifting focus on universities to become more entrepreneurship oriented,
McMullan and Long (1987) and others emphasise that curricula of entrepreneurship
programs should be different from traditional management education programs and
stage of venture development should form the basis for this distinction. More
emphasis should be given to skill-building courses such as negotiation, leadership
and creative thinking and exposure to technological innovation and new product
development. Moreover, the university’s concern for entrepreneurship emphasises
on developing entrepreneurial skills in the students through educational projects and
programs with a focus on skills like problem solving and business development
(Popescu and Lache, 2009). Another aspect that is been taken into account is the
transfer of technology through the entrepreneurial universities that act as
intermediaries (Markman et al., 2005). The research cited that universities are most
interested in generating short-term cash flows rather than creating long-term
advantages through venture capital. A research by Powers and McDougall (2005b)
shows that there has been a surge in the commercial use of research carried out in
universities in the USA over last 25 years.
Over the years, several models have been proposed by researchers to assess the
university’s entrepreneurial capabilities. Sporn (2001) proposed a model to study
entrepreneurial adaptation by linking the university’s governance and culture with the
enterprise’s governance and leadership. Etzkowitz (2004) developed a model
originated from the analysis of entrepreneurial academic development in the USA,
Europe, and Latin America. The proposed model was based on five interrelated
hypothesises—capitalization of knowledge, interdependence with the industry and
government, interdependence with other institutional spheres, hybrid organizational
forms, and institutional renovation. For the development of entrepreneurial university
Kirby (2006) provided a model of seven strategic actions that include endorsement,
incorporation, implementation communication, encouragement and support,
recognition and reward, and organization promotion. Rothaermel et al. (2007)
emphasised the significance of internal elements such as university status and
university policy; and external elements such as public policies and regional
conditions as key to entrepreneurial capabilities. Their research highlighted that the
entrepreneurial activity of a university is a natural evolution that focuses on economic
development from its traditional teaching and research.
In addition to teaching and research, university’s role in national innovation system
has evolved as a ‘third mission’ (Readings, 1996; Etzkowitz et al., 2000; Etzkowitz,
2003). As cited by Jain and Yusof (2007), university these days are acting like a
teaching, research and economic development enterprise by incorporating the
entrepreneurial education. The University’s culture is changing towards more
emphasis on entrepreneurship as strategy to stimulate research and commercialize
technology and inventions (Etzkowitz et al., 2000; Etzkowitz 2003; Rothaermel et al.
2007). Moreover, Etzkowitz et al. (2000) highlighted that most universities undertake
entrepreneurial activities to improve regional and national economic performance
and also for the university and its faculty’s financial upliftment. These findings clearly
indicate that entrepreneurial universities play a vital role in promoting innovation and
economic development. The next section discusses the role of universities and its
contribution to economy in more detail.
Contribution to Regional Economy
The research interest of the academic community started growing around mid-80s
when they started to look at linkages between knowledge production and region’s
economic growth and development performance (Goldstein and Renault, 2004).
Goldstein et al. (1995) synthesize a wide range of the literature on institutions of
higher education, and identify and describe the range of products, or outputs, from
modern research universities. They suggest how each type of outputs might
potentially lead to specific economic development impacts. The outputs and
economic impacts suggested by Goldstein et al. (1995) are shown in Figure 2. He
also proposed a conceptual framework for analysing variation in the roles performed
by universities in the development of regional innovation systems based on the triple
helix model of university, industry, and government relations. The impact of
universities on regional development has been reported in several studies (Kim,
2000; Hershberg, 2007; Bramwell and Wolfe, 2008; and others). Gunasekara (2006)
reported that the role of universities in regional innovation has evolved over the last
20 years. A study by Bramwell and Wolfe (2008) emphasises that universities have
emerged as central actors in the knowledge-based economy and are expected to
play an active role in promoting technological change and innovation. Their research
provided a detailed case study of the University of Waterloo in Waterloo, and
Ontario, Canada, with its progressive Coop and Entrepreneurial education programs,
and innovative Intellectual Property policy, illustrates the way in which the university
has contributed to growth and innovation in the local and regional economy.
According to the study by Boucher et al. (2003) successful economic regions
depends on ‘institutional thickness’ where institutions engage in the sharing of
knowledge and expertise to promote cooperative activity. Their study also suggests
that universities that are comprehensively engaged in their region’s development
tend to be single relatively large scale universities located in peripheral regions. A
research by Kitagawa (2010) studied nine English regions to investigate the links
between universities and regional advantage and emphasizes on the importance of
regional government policies. This linkage was further supported in the work of Chen
(2013) who showed that the development of local universities pulls the development
Figure 2: University outputs and expected economic impacts
(Source: Goldstein et al. 1995)
of the regional economy and the development of regional economy provides a
platform for the local universities to develop and makes them vigorously in return.
More recently Tripple et al.’s (2014:25) study on conceptual models and policy
institutions in the UK, Sweden and Austria showed that the focus of universities
varies where some are mainly concerned with knowledge commercialization and
university-industry partnerships whilst others suggest a broader perspective that also
takes into account social and cultural contributions of HEIs. Despite these
differences all the universities that Tripple et al. (2014) studied were equally involved
in promoting regional development. These studies clearly highlight that universities
play a key role in local economic development, a fact that cannot be ignored.
Conclusion
This study provides a general overview of the role of universities and its contribution
to local economic development through a random review of literature. The research
showed that university-industry collaboration promotes mutual knowledge exchange
which forms the basis for new innovations. The study therefore emphasizes the
importance of university-industry relationship and shows that it is vital for promoting
innovation that ultimately leads to regional economic development. The research
also indicates that promoting entrepreneurial universities is important to stimulate
innovation and create new entrepreneurs. Finally the study shows that universities
play a key role in regional economic development.
The study has a number of limitations. The current study is just limited to few
research papers. A more systematic or structured review of literature may reveal the
research gap that needs immediate attention of researchers. Further a qualitative,
quantitative or mixed method approach can be applied to perform a thorough
research to better understand the linkage between universities and local economic
development. Therefore, future research should aim at carrying out a more
comprehensive study by collecting empirical data.
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