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 McGregor & 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 30th 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 SectorGVA £ mGVA % Employment FTEemployment % Primary and utilities4,2954.7%60,5933.0% Manufacturing12, %230, % Construction5,7316.3%123,6556.2% Distribution and retail9, %287, % Hotels, catering, pubs, etc.3,1463.4%124,6036.2% Transport, post and communications6,3416.9%119,7186.0% Banking and financial services7,3128.0%103,1335.2% House letting and real estate services7,6998.4%27,3461.4% Business services9, %247, % Public sector20, %539, % HEIs1,2761.4%34,0111.7% Other services3,9534.3%99,6145.0% Total91,482100%1,997,386100%

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 Expenditure impacts of all students –Debateable what assumptions to make about student spending GDP £m Employment FTE HEI spending2,40480% 51,57085% Total student spending60320%9,19615% SCO36912%5,6289% RUK722%1,0952% ROW1625% 2,4724% Total impact3,007100%60,766100% %3.3%3.4%

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

Impact of additional £100m 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 , % 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