Irish Higher Education Sector Is a Major Contributor to Economy

Posted on: 28 October 2014

The impacts of third level funding in Ireland are an increasingly important and hotly debated topic, however empirical studies which could shed light on these debates are lacking. In particular, questions about the economic impacts of innovation spending urgently require the nuanced insights that evidence-based research can provide. This is exactly what Professor Brian Lucey, Professor in Finance at Trinity, Dr Charles Larkin, Visiting Research Assistant and Qiantao Zhang at the School of Business, Trinity College have addressed in a new working paper presented at the annual Dublin Economics Workshop in Cork recently.

Their paper, entitled ‘The Economic Impact of Higher Education Institutions in Ireland: Evidence from Disaggregated Input/Output Tables’ presents the first evidence-based study of how third level funding contributes to economic growth in Ireland. The study found that the Irish higher education sector makes a significant economic impact and adds considerable gross value to the economy. The study, which was based on CSO figures for 2010/11, employed input-output analysis to examine the economic impacts of Irish higher education institutions and, contrary to what might have been expected, the preliminary findings indicate that Irish third level institutions contribute more than Euro10bn a year to the economy.

The preliminary data also showed that the Irish higher education sector performs at close to ‘best in class’ for similar institutions in the UK and US.

This study is part of a larger research project called Tionchar (the Irish word for impact) which aims to analyse the economic impact of our higher education sector and focussed on assessing the impact of innovation spending. This research project, led by Principal Investigator Professor Brian Lucey, is supported by funding from Science Foundation Ireland and the Irish Research Council.

The working-paper specifically addressed the question: what is the gross economic output/ employment effect of a euro spent on higher education? And as a result, did not incorporate the human capital, research and development and entrepreneurial economic returns generated by the sector on a general and individual institutional basis. In addition, the study didn’t examine the non-economic returns of education, whether social, political, public health or psychosocial.

Applying approaches from microeconomic methods, the team evaluated the gross economic output/ employment effect of a euro spent on higher education using a form of analysis invented by Nobel Prize winner Wassily Leontief. This process, which dates back to the mid-1930s is the internationally accepted way of evaluating how a sector in the economy impacts on another sector or overall. The study used the 2010 Input-Output tables for Ireland, which are the latest and newest offered by the CSO, and disaggregated them for the higher education sector.

Contextualising their findings, the authors noted that ‘there might still be a lingering effect of the Celtic Tiger’ and added the caveat that these are ‘preliminary and draft results’ that focussed ‘exclusively at the immediate economic impact of the institutions and not the social, educational or even the employment and wage prospects of graduates.

Key findings from the working paper include:

• Irish HEIs, either universities or IoTs, exhibit rather high multipliers, indicating that they have a relatively strong impact on the economy via the household expenditure. Imagine a multiplier of 4.25. This can be understood to mean that in the case of this institution that for every euro spent on Miskatonic U, 4.25 are returned to the local economy as a result of direct purchases and other expenditure related to the presence of this institution. The gross income of Irish HEIs, a total of €2.6b in 2010-11, generated gross output nationwide of €10.5b.

• There is a distinction between Dublin-based universities and those situated elsewhere with regards to their Type II multipliers. In particular, the three universities in the capital city – DCU, TCD, UCD – are among the top institutions for impact, with multiplier between 4.14 and 4.17. By comparison, the other four universities, namely UCC, NUIG, NUIM, UL, are lower, with the highest multiplier of this group at 3.86. However, the IoT sector does not seem to show the same geographic split. This is also found in the UK where London based HEI’s show significantly higher impacts than do those in Wales for example. Agglomeration matters.

• Looking at an all-island comparison we see the Irish HEI’s perform well, with only QUB showing a balanced budget multiplier above the median of 70+ institutions across Ireland and GB. 

• Amongst comprehensive institutions the Irish HEIs, namely UCC, UCD, DCU and TCD stand out. It is noteworthy that in reality only UCC, UCD, TCD and St Andrews can be described as fully comprehensive universities (having e.g. a medical school, a school of classics etc) in the top 20 in the UK and Ireland. This is important since Irish legislation and practice has traditionally supported the idea of higher education covering all aspects of learning, including the arts and humanities. This makes economic sense is the finding here.

• The preliminary study also calculated the effect of higher education institutions on employment. The sector as a whole shows that for every one million euro spent on the universities supports, in addition to the employment by the sector of 13,701 an additional 1781 persons through indirect effects and an additional 66,470 persons via induced demand. This is in keeping with some US results and in part reflects the relatively high income of persons employed by the sector and how they stimulate the local economy. It is a common finding that high skills sectors can show economic multiplier effects that are significantly greater than expectations.