The Effects of Higher Education on Local Economic Growth: Evidence from Natural Experiments in Constructing University Satellite Campuses in China

• In Event: Experiences from China, Uganda, and Myanmar

Proposal

From Human Capital Theory to Endogenous Growth Model, and Knowledge Spillover Theory, researchers have placed increasing emphasis on the role of education (higher education in particular) in driving economic growth. In order to avoid endogeneity problem whereby better endowed regions are in better position to attract more prestigious universities, more recent research have taken advantage of exogenous policy shocks such as the Morrill Act (1862) in the US, the papal schism in 14th century, or the building of secret science towns in former USSR in the 1950s to examine the causal impact of new university campus on local economic activities (Andersson, 2009; Crookston & Hooks, 2012; Cantoni & Yuchtman, 2014; Liu, 2015; Kantor & Whalley, 2019; Hausman, 2020; Andrews, 2022).
However, little is known about the effect of expansion of higher education in developing country context. Since 1999, Chinese government has abruptly expanded its higher education admission numbers to cushion the effects of East Asian Financial Crisis which resulted in a five-fold increase in 20 years. In order to accommodate such drastic increase in number of students on campus, 1468 new satellite campuses were set up by 1339 universities in nearby towns and cities. This study exploited the temporal and geographical variation in establishing these university campuses across 333 Chinese counties between 2000 and 2018 to examine the causal effects of higher education on county-level economic growth.
Firstly, we used time-varying DID model and panel data of 2567 Chinese counties and found that the new campuses not only promoted the economic growth of local counties, but also enabled it to move up the value chain. Secondly, event study model showed that its effects intensified over time but were more palpable for the industrial sector than the service sector. Thirdly, we provided evidence that the growth-accelerating effects of these universities at least partially went through the local economic actors such as the Development Zones established within their counties. Fourthly, we also identified strong heterogeneity effects among different universities. Namely, that the impact of four-year universities or comprehensive universities were mainly concentrated in the service sector, while three-year vocational colleges and industry-specific colleges were better at facilitating the growth of the industrial sector. Furthermore, we also found that the economic impact of national key universities and colleges was greater.

Author

• Wei Ha, Peking University