The impact of higher education institutions HEIs on

The impact of higher education institutions (HEIs) on the Scottish economy: New evidence from an HEI-disaggregated input-output approach Kristinn Hermannsson, Katerina Lisenkova, Peter Mc. Gregor & J Kim Swales Fraser of Allander Institute and Department of Economics, University of Strathclyde Scotland’s universities and the economy: Impact, value and challenges Court senate suite, Colling building, University of Strathclyde, Glasgow Tuesday 30 th June 2009

Outline • • • Background and methods HEIs as a production sector Characteristics of HEIs Total spending impact Policy simulations

Scottish Input-Output Analysis • Separately identify HEI sector within the 2006 Scottish IO accounts : – Instructive as a set of accounts – Basis for all other multi-sectoral modelling – Perform conventional demand-driven analysis • Disaggregate the Scottish IO sector into the component institutions

Multipliers and assumptions • Multipliers: – Type I: Direct and indirect effects – Type II: Direct, indirect and induced effects (households endogenised) • Assumptions: – – Constant returns to scale Fixed coefficient production technology Constant coefficients in consumption (Type II multipliers) No supply constraints • Interpretations: – Long run regional (Supply side has adjusted through changes in factor stocks) – Short run with excess capacity

GVA & employment 2006 GVA £ m GVA % Employment FTE employment % 4, 295 4. 7% 60, 593 3. 0% 12, 594 13. 8% 230, 001 11. 5% Construction 5, 731 6. 3% 123, 655 6. 2% Distribution and retail 9, 797 10. 7% 287, 612 14. 4% Hotels, catering, pubs, etc. 3, 146 3. 4% 124, 603 6. 2% Transport, post and communications 6, 341 6. 9% 119, 718 6. 0% Banking and financial services 7, 312 8. 0% 103, 133 5. 2% House letting and real estate services 7, 699 8. 4% 27, 346 1. 4% Business services 9, 291 10. 2% 247, 176 12. 4% 20, 046 21. 9% 539, 924 27. 0% HEIs 1, 276 1. 4% 34, 011 1. 7% Other services 3, 953 4. 3% 99, 614 5. 0% 91, 482 100% 1, 997, 386 100% Sector Primary and utilities Manufacturing Public sector Total

Output multipliers

Cost breakdown by sector

Income by sector

Exports & domestic demand

Exports by origin and type

Hypothetical Extraction • Hypothetical extraction of individual Scottish HEIs – Sector is replaced by imports HEI spending 2, 404 80% 51, 570 85% Total student spending 603 20% 9, 196 15% SCO 369 12% 5, 628 9% RUK 72 2% 1, 095 2% ROW 162 5% 2, 472 4% Total impact 3, 007 100% 60, 766 100% % 3. 3% • Expenditure impacts of all students – Debateable what assumptions to make about student spending Employment FTE GDP £m 3. 4%

Erratum • In paper published in FAI Commentary the GDP impact of Dundee University is said to be £ 175 m but is in fact £ 196 m • Based on this it is claimed the University of Aberdeen is the 4 th biggest in Scotland based on GDP impact (£ 189 m), when in fact it is the 5 th biggest and Dundee is 4 th

Impact of additional £ 100 m on HEIs • Aggregate multiplier effects of £ 100 million spent on HEIs (in general): output, GDP, employment, output multiplier, employment multiplier – Funded by increased exports • Research • External students – Funded by cutbacks in government expenditure

GDP impacts disaggregated by sector

Employment impacts disaggregated by sector

Impact of HEIs exports (1) • HEI exports – RUK & ROW research funding – Ex-EU and RUK tuition fees • 25% of Scottish HEIs income is exports – 2006: £ 510 m – Increased by a third from 2002

Impact of HEIs exports (2) Exports (£m) GDP impact (£m) Employment impact FTE’s 510 611 14, 370 1. 0% 0. 67% 0. 72%

Conclusions & future research • HEIs are a significant sector in terms of their impacts as businesses • The economic characteristics of HEIs are not the same as the public sector • HEIs export effectiveness has immediate and significant repercussions for host economies • Future work and work in progress: – – Application to other UK regions Analysis of interregional impacts Social accounting matrix (SAM) analyses Sub regional application: Glasgow