Universities as Engines of Regional Economic Development

Audretsch_David_HProfessor David Audretsch is a Distinguished Professor and Ameritech Chair of Economic Development at Indiana University, where he also serves as Director of the Institute for Development Strategies.  Audretsch’s research has focused on the links between entrepreneurship, government policy, innovation, economic development and global competitiveness. His research has been published in over one hundred scholarly articles in the leading academic journals.

With co-authors Dennis P. Leyden and Albert N. Link, Audretsch recently published an article in the journal Economic Development Quarterly, titled “Regional Appropriation of University-Based Knowledge and Technology for Economic Development.”In this article, he argued that knowledge does not fall like manna from heaven, but rather it is systematically transmitted through research that involves universities. We thought his argument was fascinating, and thought you might too, so we asked him to expound a bit on these thoughts. The following is his response.

I spent the decade of the 1970s at various universities. First I got the B.A., then the M.A., and finally the Ph.D. I don’t ever remember any professor, or anyone else for that matter, ever mentioning, let alone teaching, analyzing or researching, the role that the university played in the economy. What I do remember is the blanketing homogeneity within each professorial rank in terms of responsibilities and requirements. All professors were assigned the same standard teaching load and all had research expectations. Service was of course important, but that meant service to the department and university. Nobody ever talked about service to the community or outreach, let alone technology transfer or knowledge spillovers from the university.

You might think that I attended these universities in Europe, perhaps the University of Rome or Heidelberg University. In fact, my latter two degrees were from the University of Wisconsin, home of one of the most established, effective and revered technology transfer offices, the now famous WARF. But back then, nobody seemed to have heard of it, certainly I never did, even though it was located right down the street from my department.

Back in the day, there seemed to be little that the university could contribute to economic growth, job creation and competitiveness. After all, the famous Nobel Prize winning Solow Model attributed growth to two main factors – factories, machines and planes, or what was referred to as physical capital, and the people manning those factories and machines, or what was termed as unskilled labor. The university did not seem to be relevant for contributing to or enhancing either physical capital or unskilled labor. While Solow did acknowledge that technological change could play an important role in generating economic growth, he made it clear that it was exogenous to the model, and in a highly celebrated passage he stated that it “fell like manna from heaven”. Nobody seemed to suggest back then that it might spill over from universities.

Thus, a generation of thought leaders and also policy makers shaping the debate about how best to enhance the economic performance of regions looked to companies to invest in expensive physical capital as the key policy approach. By contrast, there was no tradition or even policy framework suggesting that universities could make an important contribution to regional economic development.

However, as globalization shifted the comparative advantage towards knowledge, ideas and creativity, the university emerged as not just making a contribution for social and political stability and of course, “knowledge for its own sake”, but also as a crucial source of research, human capital and creativity.  This special issue of Economic Development Quarterly is devoted to identifying the various ways that universities can serve as engines of growth, jobs, competitiveness and economic performance by not just producing new ideas and knowledge, along with human capital and creativity embodied in people, but also through purposeful efforts and policies to facilitate the spillover of knowledge from the university to the region to spur innovative activity.

Perhaps this is why there is a virtual consensus that spans both of the major political parties that investments in universities yield a strong and positive return on investment in terms of economic performance.

Read Professor Audretsch’s complete article“Regional Appropriation of University-Based Knowledge and Technology for Economic Development,” from Economic Development Quarterly, free for a limited time here.

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