Unveiling the Economic Impact of Universities in Latin America
Some pioneering studies establish a solid case for the value of universities... and reveal key strenghts and shortcomings
“…This report focuses on data gathered from a large-scale, systematic survey of Stanford alumni, faculty and selected staff in 2011 to assess the university’s economic impact based on its involvement in entrepreneurship. The report describes Stanford’s role in fostering entrepreneurship, discusses how the Stanford environment encourages creativity and entrepreneurship and details best practices for creating an entrepreneurial ecosystem. The report on the 2011 survey, estimates that 39,900 active companies can trace their roots to Stanford. If these companies collectively formed an independent nation, its estimated economy would be the world’s 10th largest. Extrapolating from survey results, those companies have created an estimated 5.4 million jobs and generate annual world revenues of $2.7 trillion”
We all know not every university is located at the heart of Silicon Valley. We all know setting up new Silicon Valleys is not an easy proposition -as corroborated by the many failed attempts on record around the world, and even in the US itself-. We all know Stanford’s overwhelming concentration of talent and resources are beyond reach for almost any other university around the world. Yet the 2.7 trillion figure is hard to dismiss. The way I see it, it stands as proof that the economic potential of universities can be powerful. And it makes unavoidable the questions of how, and under which circumstances. What should universities do in order to become engines of economic development? What is the environment that will better allow such potential to flourish? Even before that, do we actually have an estimate of the current economic impact of universities? Until recently, the answer to the the last question in the case of Latin America was NO.
Universities have long been recognized as important pillars of economic development. They contribute to the economy in various ways, including research, innovation, human capital development, and entrepreneurship. Universities contribute significantly to local and regional economies through direct and indirect channels. They create jobs, generate income, and stimulate economic activity through spending on facilities, staff, students and research.
Beyond these general observations, a list of studies aimed at estimating such impacts with precision has accumulated in recent years. A non-exhaustive list would include:
The Impact of Universities on the UK Economy. Universities UK (2014)
The Importance of Universities to Australia's Prosperity. (2015)
This list is circumscribed to studies that emphasize a quantitative approach, and do so having as the unit of analysis individual universities, rather than the impact of higher education as a whole. Exception made of the Stanford and MIT studies-which will be subject to a discussion later in this note- the cornerstone of this type of analysis is a comprehensive methodological framework designed to evaluate the economic footprint of universities through input-output tables. This approach encompasses a variety of key economic indicators, including Gross Domestic Product (GDP) contributions, employment creation, fiscal revenues, and broader sector impacts. The methodology hinges on a multi-dimensional analysis, considering both direct effects — stemming from the universities' own activities — and the wider indirect and induced impacts that ripple through the economy.
A pivotal component of the methodology is the concept of the "multiplier effect." This principle elucidates how spending by universities amplifies and disseminates throughout the economy, spawning additional economic activity. For instance, a university's expenditure on research may lead to job creation within the institution and simultaneously fuel demand for goods and services in related industries, thereby generating further employment, growth and even productivity gains in those sectors.
It needs to be mentioned that there is a long tradition of qualitative assessment of the role of universities in regional development, as well as assessments of the returns to post-secondary education within a human capital framework. These are important lines of research but they lay beyond the scope of this note.
Here I must connect to the previous post in EdTech Horizons. There, I mentioned that I had managed two research projects in my last years at the IDB. One, on universities and entrepreneurship, was the subject of that precedent post. Here I cover the second: an attempt to produce the first precise estimate of the economic impact of a selection of Latin American universities. As in the other research project, in this case the identification of the economic impact of universities as a key topic to be addressed came directly out of the demands of a consultation meeting with a selection of university rectors from Latin America at the IDB headquarters in October, 2018.
My approach here is the same, namely, rather than use this space to repeat what was presented in detail in the reports emanated from that research effort, I would like to delve into the larger implications of the findings. I will spend some space however describing the overall project and some examples of what it did, before moving on to my own take of what the findings that resulted from the project mean.
In contrast with the first project I discussed, this second research project was led, after a highly competitive biding process, by an international consulting firm, Development Poles. The firm brought together some top level expertise from the Universitat de Barcelona and the Universitat Autónoma de Barcelona, with previous experience in similar studies in Europe. As in the previously featured project, UNIVERSIA-Santander and the Inter-American Development Bank acted as co-sponsors and provided sustained steering and feedback to the researchers.1 Needless to say, any assertions related to the content of the study in this note are entirely my responsibility, and they are not the responsibility of Development Poles or the sponsors of the project.
A brief description of the Latin American research project
The project Estudio Comparativo del Impacto Económico y Social de una Selección de Universidades de América Latina y el Caribe en sus Respectivos Entornos Locales o Regionales set out to accomplish a pioneering study on the economic and social impact of nine Latin American universities in their respective environments. This study not only produced quantitative estimates of the economic impact generated by these institutions but has also characterized their contributions to society in a broader sense.
The universities analyzed include both public and private institutions from Colombia, Mexico, Argentina, Chile, Costa Rica, and Panama.2 Participating institutions were deliberately selected so as to represent significant variability in terms of size, number of students and employees, as well as in the additional activities such as knowledge transfer, the presence of scientific or technological parks, and the creation of technology-based companies, beyond of course the variability in their core instructional programs. By juxtaposing these varied cases, the analysis revealed not only the shared economic contributions of universities but also the distinct ways in which they influence their respective regional economies.
The economic analysis was approached from two perspectives: demand, estimating the benefits generated by university activity on the local or national economy, and supply, evaluating the long-term impact on productivity and economic growth. Despite limitations in some data, the study managed to design and apply a robust methodology to measure the economic impact in the short and medium to long term.
The results highlight that the impact of universities goes beyond the usual narrow perception of their education activities, significantly affecting various economic sectors not limited solely to the educational field. Additionally, it is noted that the public or private ownership is not the most determining factor in the economic impact generated, but other activities such as R&D or service provision.
This study not only provides concrete data on the contribution of universities to the economies of their countries but also offers evidence of the social return on investment in higher education. Furthermore, it emphasizes the importance of advancing in the creation of scientific and technological parks and promoting research and entrepreneurship to increase the impact of universities on economic and social development.
Beyond the quantitative estimates, the project also included a qualitative approach that analyzed the social impact of these institutions, considering aspects such social commitment, and interaction with the labor and business environment. This holistic approach allows for a better understanding of the role of universities in promoting sustainable development and responding to the social and economic challenges of the Latin America. (edited excerpts from the final comparative report)3
A glimpse at the kind of analysis performed and its results can be taken by reading the four tables below. Rather than covering all nine case studies, I have built the tables focused in three universities only, one large national public (UCR, Universidad de Costa Rica), one mid-size public, engineering-focused university (UTP, Universitdad Tecnológica de Panamá) and one relatively smaller private university emphasizing business and health care-related degrees (CES, Colombia). As stated, the intention here is not to present a comprehensive picture of the project and its outcome, but rather using a selection of information in order to illustrate what was done.
Tables 1 to 4 present a comparison of the economic contributions made by Universidad de Costa Rica (UCR), Universidad Tecnológica de Panamá (UTP), and Universidad CES respectively, based on the latest available figures from 2019. The information (see Table 2 in particular) also considers the size of each institution, as measured by student enrollment. A cursory inspection of the figures reveals the diverse and profound ways in which universities can influence their respective regional and national economies. These institutions contribute substantially to GDP, create thousands of jobs, and have ripple effects across various economic sectors.
Clearly, these three institutions are more than just centers of learning and academic activity. They are economic engines.
However, not all the cases included in the study exhibit such a strong economic impact. Although a positive impact exists in every case, some universities, including some of the large ones, presented weaker results. As noted in the synthesis above, the information in the tables suggests this was not related to whether the institution is public or private. The research team puts forward the thesis that what makes a difference is the degree of engagement with the community and the business environment in the form of knowledge transfer, entrepreneurial activities and R&D, which, it has to be highlighted, aligns very well with the observations made in the OECD study subject to the previous EdTech Horizon post.
Case studies resulting from the DEVPOLES research project are still much richer in findings. They describe in detail how the multiplier effect generated by university expenditures creates additional jobs and income in the surrounding community. Also, how university activity impacts fiscal returns through several channels. On this particular aspect it is worth noticing that, for public universities, the fiscal returns relative to public funding, both for UCR (65.3 percent) and UTP (38.7 percent) are massive, highlighting the fact that, according to the study, the fiscal burden of funding public universities is far less onerous than what is usually believed to be the case: in two other of the cases included in the study (UCH, Chile and UNNOBA, Argentina), the fiscal return exceeded the 100 percent, implying that fiscal returns surpasses public spending for those universities. This aspect may serve to highlight the value of investing in higher education, not only in terms of its contribution to human capital formation and broader economic impact, but also as a sound public spending priority.
In balance, judging from the outcome of the pioneering study carried out by DEVPOLES, the economic footprint of universities extends far beyond their campuses, shaping the economic landscapes of their regions and countries. The repercussions of their education, research and procurement activities can represent, if well managed and integrated into the surrounding environment, a sizable contribution to the economy
Additional evidence: The case of ESPOL
As the IDB and UNIVERSIA-Santander were promoting the comparative study I have just described, one additional leading university, the Escuela Superior Politécnica del Litoral (ESPOL), located in Guayaquil, Ecuador, was moving forward with a similar type of analysis, this time as a part of the preparation of a larger investment project in Ecuador. The resulting estimate of the economic impact of ESPOL was to become an input for decision-making regarding the project, so an IDB-funded study was carried out.4
As in the comparative cases described above, a combination of quantitative and qualitative analyses aimed at assessing the direct, indirect, and induced economic impacts of the university's operations, research, and capital spending was applied. In keeping with the standard methodology used in most studies around the world, input-output models were utilized to estimate the multiplier effects of university spending on the local and national economy.
It lays beyond this note to provide details about this comprehensive study. Suffice it to say that its results replicate across the board the findings of the DEVPOLES comparative research. Thus, ESPOL is found to generate an impact of 1,273 million US dollars for the period of three years covered in the analysis (2016-2018), plus and estimated 768 million US dollars in term of its contribution to human capital formation for the same period. This does not include additional contributions to the economy in terms of employment generation, capital investments in scientific infrastructure and others.
One distinctive feature of the ESPOL study is that it examined in depth the economic impact of its links with firms.5 Using a rigorous matching methodology, the ESPOL study examined specifically the relationship between the universities` procurement activities, to the extent that it demanded innovation on the side of the companies providing products, prototypes or services, most of the time involving the utilization of laboratories or sophisticated production facilities. The focus of the analysis was the activities of ESPOL-TECH E.P., a company, fully owned by the university, created for the express purpose of facilitating and expediting procurement activities needed for R&D and technology transfer. The impact of the relationship between ESPOL-TECH E.P. and firms was measured looking at whether product innovation, learning or better links with new clients or other laboratories or academic institutions took place. The overall impact on each firm’s sales and level of R&D activity was also observed. The outcome of the quantitative analysis concluded that firms linked to ESPOL innovation projects and activities improved sales thanks to internal learning processes unleashed by the need to provide innovative products, sometimes through investments in R&D.
What does it all mean
Both the DEVPOLES comparative study of nine Latin American Universities and the ESPOL report clearly establishes on solid empirical grounds that, beyond rhetoric, and with variability according to size and location, universities in Latin America can have a substantial direct economic impact by their spending on infrastructure, their hiring of professors and administrators, their investments in student services, as well as sizable indirect economic impacts on local businesses, all in all returning fiscal revenue to the national or local treasury that partly -and in some cases completely- offsets public funding received in the case of public universities. All this, in addition to their long term impact on human capital accumulation, investments in innovation in firms that establish a relationship with universities and the economic impact of R&D activities in the form of patents and licensing. Providing a good education is hard enough, and it is obviously the first and most important thing that one should expect and demand from a university. Yet, fulfilling their core education mission leaves an inmense space to go beyond, and realize a potential contribution to society that rigorous analysis has shown exists, in terms of the economic impacts of the institutions of higher education.
The concluding sections of the studies reviewed in this note discuss the size and the mechanics of these impacts in detail and emphasize that they are not the automatic result of the existence of universities, but it depends strongly and vary widely according to the degree of engagement that a particular institutions has with the surrounding economy through research, entrepreneurship and knowledge transfer activities.
In in this final section, I would move on to reflect on what I believe are a handful of general but important lessons learned out of these pioneering efforts of applying state of the art methodological approaches to the study of the economic impact of universities in Latin America.
The true value of universities: their regional impact
One observation subtly insinuating itself in the case studies is that it seems to be the case that, no matter how solid the economic impacts of universities are at the national level, their influence at the local level tends to be even stronger. Table 5 speaks eloquently to this issue.
In all three cases, UCR, UTP and CES, which we have used in this note to highlight the results of the DEVPOLES 9-cases strong study, the economic impact of the respective university is larger on local GDP than on national GDP. The point is specially reinforced by the case of UTP, since in this case we have a university that has eight regional campuses: in all of them but one, the impact of the university is stronger in each locality than at the national level, and often much stronger. Even though we do not have a similar comparison available in the ESPOL study, the whole analysis is predicated on the impact of the university on the city of Guayaquil and the Guayas region.
This is a key point to retain. Universities` role in society is being challenged around the world, given the profound ongoing transformation in digital technology and business organization. I will come back to this topic in future notes, but the lesson here is that the local relevance of universities may have to be heavily, and positively, weighted when it comes to consider their future value as institutions.
The missing link in Latin American universities, entrepreneurship
Allow me to go back for an instant to the quotation from the study on economic impact of Stanford University that opened this note. Explicitly, the estimate of the economic impact of Stanford is mostly based on evidence regarding entrepreneurial activity directly or indirectly carried out by students and alumni. This is a similar approach to the MIT study mentioned earlier in this note, which concludes that:
MIT's research activities led to the creation of 30,200 companies employing an estimated 4.6 million people worldwide as of 2018.
These MIT-related companies generated approximately $1.9 trillion in annual global revenues in 2018.
MIT alumni have founded or co-founded notable companies such as Intel, Dropbox, and Moderna Therapeutics, contributing to innovation and economic growth in various industries.
In other words, the main massage in the economic impact studies of these two leading American universities is that they contribute to economic growth and development through their research activities, job creation, and, first and foremost, through the formation of new companies by their alumni.
In contrast, one observation regarding the Latin America case studies that went through the economic impact evaluation described in this note is that entrepreneurship is either absent or relatively minor or incipient as a source of economic impacts for these institutions. Although the three universities highlighted above, UCR, UTP and CES do have some considerable degree of engagement with making entrepreneurship a component of their curricula or extra-curricular activity, the scope of those activities is still relatively nascent and their scope limited. It is worth noticing that, out of the nine institutions included in the DEVPOLES research project, four responded NO to the question about having start ups or spin offs related to the institution and seven out of the nine had no scientific park in place in their campuses.
The ESPOL study offers some additional details along this line: as part of the economic impact study, a sample of 302 graduates that received their diplomas between 2015 and 2019 was surveyed. According to the survey, 42.4 percent of alumni had become entrepreneurs; at the time of the survey, 72 ventures were active, out of which 43.2 percent could be classified as early stage, 44.4 percent as beyond early stage and 12,5 percent consolidated. Engineering, design and sciences were the disciplines that graduated most of the entrepreneurs. All this paints an encouraging picture for ESPOL, an institution that constitutes a clear instance of those few Latin American universities that have a considerable trajectory in incorporating entrepreneurship in the curriculum and practice of the institution. Yet no estimate of important dimensions, particularly the value of the firms being created, was available, preventing the inclusion of the contribution of companies emanated directly or indirectly from the university to be included in the overall calculation of economic impact.
Not every university should embrace entrepreneurship to the same extent or in the same way, since what an institution of higher education needs to do is heavily dependent on its mission and the regional context in which it operates, its idiosyncratic ecosystem (see my previous note on this Substack). Yet, at a time characterized by rapid technological change, and unprecedented challenges, universities cannot overlook a major source of economic impact such as entrepreneurship. Stanford’s heft and worldwide influence will not be replicated, but it signals a path that for the most part waits to be adequately explored by Latin American institutions.
A final note on the quality and availability of information
It would be a serious omission closing this note without making one more very important point: putting together the pioneering estimates of the economic impact of universities in Latin America in the DEVPOLES study required a nothing short of titanic efforts in the process of gathering the indispensable information for the cases to be written. First, many institutions originally selected to be included in the study had to be discarded or replaced since they did not consent to participate in the research process. This is natural in a way, yet the reason most commonly argued was that they did not have the information required readily available, or the internal resources indispensable to gather such information were substantial and beyond affordable. Second, even in institutions that agreed to participate, data was very hard to get, sometimes ended up being incomplete and in any case it was far from well ordered and standardized prior to the dedicated work of the researchers.
So, in closing, let’s not forget about the urgent need for universities to put together adequate information systems covering budget, overall use of resources, enrollments, community links, research activities follow up to alumni, and still other key aspects. Not only because future researchers may want to use that information for additional studies, but because, with the advent of AI, the management of complex organizations is bound to rely on the systematic and intelligent use of information, to the point that not having it available will prevent, sooner than later, the efficient and effective functioning of universities in the digital age.
As in my previous note on this Substack, I want to recognize the key contributions to the study of Javier López, from UNIVERSIA, whose brilliant insights and unwavering commitment represented a key part of our success, as well as of Isabel Vicentini, then my colleague at the Competitiveness, Technology and Innovation Division at the IDB. Gonzalo Rivas, in his role as Division Chief, never had doubts about the importance of this project. Special recognition goes in this case to Marcel Roura, head of Development Poles and his team, as well as the extraordinary researchers at the Universitat de Barcelona and the Universitat Autónoma de Barcelona, who not only delivered a first-for-Latin America study but invested considerable flexibility and perseverance in putting together the data indispensable for the study to come to fruition. Needless to say, the studies would not have been possible without the commitment and collaboration of the leadership an staff of all nine universities involved; the researchers and sponsors have a debt of gratitude to them.
The nine universities included in the project, each one of them the subject of a full case study, were Universidad CES (Colombia), Universidad de la Costa (Colombia), Universidad Autónoma de Chihuahua (México), Universidad de Chile, Universidad Nacional de Costa Rica, Universidad Autónoma de Chiapas (México), Universidad Nacional Noroeste de Buenos Aires (Argentina), Universidad de Tarapacá (Chile) y Universidad Tecnológica de Panamá.
DEVPOLES, Mayo, 2022. Estudio Comparativo del Impacto Económico y Social de una Selección de Universidades de América Latina en sus Respectivos Entornos Locales y Regionales. Universidad de Barcelona-AQR-Lab, Universitat Autónoma de Barcelona-CRIEDO. Ciudad de Panamá. MIMEO.
Centro de Investigaciones Económicas, ESPOL. 2020. Evaluación de la Contribución Económica de la Escuela Superior Politécnica del Litoral -ESPOL: Un Análisis de Corto y Largo Plazo. ESPOL. Guayaquil. MIMEO. I would like to recognize the extraordinary research team, led by José Gabriel Castillo, as well as the enthusiastic support of ESPOL`s Rector at the time, Cecilia Paredes Verduga. My former colleagues Carlos Guaipatin and Fernando Vargas deserve also recognition: they invested considerable time facilitating the conditions for the sucess of the study and providing technical feedback.
Estrada, Pablo & Leonardo Sánchez-Aragón. 2021. Evaluación de la contribución económica de la ESPOL en el tejido empresarial y cadena de valor. ESPOL. Guayaquil. MIMEO.