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 2006Sector GVA £ m GVA %

Employment FTE employment %

Primary and utilities 4,295 4.7% 60,593 3.0%

Manufacturing 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%

Public sector 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%

Total 91,482 100% 1,997,386 100%

Output multipliers

0

0.5

1

1.5

2

2.5

3

3.5

Prim

ary

and

utilit

ies

Man

ufa

cturing

Const

ruct

ion

Dis

trib

ution a

nd

reta

il

Hote

ls, c

ater

ing,

pubs,

etc

.

Tra

nsp

ort

, post

and

com

munic

atio

ns

Ban

king a

nd

finan

cial

ser

vice

s

House

lett

ing a

nd

real

est

ate

serv

ices

Busi

nes

s se

rvic

es

Public

sec

tor

HEIs

Oth

er s

ervi

ces

Type I Type II

Cost breakdown by sector

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Prim

ary

and

utilit

ies

Man

ufa

cturing

Const

ruct

ion

Dis

trib

ution a

nd

reta

il

Hote

ls, c

ater

ing,

pubs,

etc

.

Tra

nsp

ort

, post

and

com

munic

atio

ns

Ban

king a

nd

finan

cial

serv

ices

House

lett

ing

and rea

l est

ate

serv

ices

Busi

nes

sse

rvic

es

Public

sec

tor

HEIs

Oth

er s

ervi

ces

Gross operating surplus

Compensation ofemployees

Imports

Taxes on products andproduction

Intermediate purchases

Income by sector

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Prim

ary

and

utilit

ies

Man

ufa

cturing

Const

ruct

ion

Dis

trib

ution a

nd

reta

il

Hote

ls, c

ater

ing,

pubs,

etc

.

Tra

nsp

ort

, post

and

com

munic

atio

ns

Ban

king a

nd

finan

cial

ser

vice

s

House

lett

ing a

nd

real

est

ate

serv

ices

Busi

nes

sse

rvic

es

Public

sec

tor

HEIs

Oth

er s

ervi

ces

Exports

Local final demand

Intermediate demand

Exports & domestic demand

0

50

100

150

200

250

300

350

400

450

Edin

burg

h

Gla

sgow

Str

athcl

yde

Dundee

Aber

dee

n

St A

ndre

ws

Her

iot-

Wat

t

Cal

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n

Stirlin

g

Nap

ier

Rober

t G

ord

on

Pai

sley

SA

C

UH

I

Aber

tay

QM

UC

Bel

l Colle

ge

GSA

EC

A

RSA

MD

£ m

Total exports

Domestic demand

Exports by origin and type

0

20

40

60

80

100

120

140

160

Edin

burg

h

Gla

sgow

Dundee

Str

athcl

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St A

ndre

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Aber

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n

Her

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SA

C

Pai

sley UH

I

Aber

tay

QM

UC

EC

A

GSA

RSA

MD

Bel

l Colle

ge

£ m

ROW Tuition

RUK Tuition

ROW Research

RUK research

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 £mEmployment FTE

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% 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

SCO RUK ROW SCO RUK ROW

Aberdeen 189 24.97 5.18 11.53 230 4,553 443 92 205 5,293

Abertay 38 8.90 1.13 3.97 52 960 158 20 71 1,208

Bell College 25 10.42 0.07 0.07 36 667 185 1 1 855

Dundee 196 31.04 6.70 10.90 245 4,878 551 119 193 5,741

ECA 18 2.62 1.48 2.22 24 436 47 26 39 549

Edinburgh 498 33.50 21.58 23.56 577 11,274 595 383 418 12,670

Caledonian 119 41.81 2.69 5.64 169 2,783 742 48 100 3,673

GSA 19 2.53 1.47 1.78 25 495 45 26 32 597

Glasgow 375 48.31 7.34 12.81 443 8,140 858 130 227 9,355

Heriot-Watt 116 4.79 2.42 24.25 147 2,625 85 43 431 3,183

Napier 96 21.16 2.28 13.17 133 2,239 376 40 234 2,889

Paisley 69 23.42 0.49 3.46 97 1,693 416 9 61 2,179

QMUC 33 9.62 1.78 3.54 48 794 171 32 63 1,059

Robert Gordon 89 23.05 2.08 10.05 124 2,143 409 37 178 2,767

RSAMD 12 1.48 0.52 0.51 15 316 26 9 9 361

St Andrews 129 8.05 8.67 11.93 158 3,081 143 154 212 3,589

SAC 51 2.11 0.16 0.15 54 1,305 38 3 3 1,349

Stirling 99 17.43 3.21 5.83 125 2,494 309 57 103 2,964

Strathclyde 225 41.86 2.34 16.29 285 5,223 743 42 289 6,297

UHI 28 12.24 0.29 0.56 41 973 217 5 10 1,205

Total impact 2,425 369 72 162 3,029 57,071 6,556 1,276 2,880 67,783% of SCO total GDP/employment

2.7% 0.4% 0.1% 0.2% 3.3% 2.9% 0.3% 0.1% 0.1% 3.4%

Student impacts

Total

Employment FTE

Student impacts

Total

GDP £ m

HEI spending

HEI spending

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 impactsdisaggregated 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