A student walks through Cabell Library at Virginia Commonwealth University in Richmond.
A student walks through Cabell Library at Virginia Commonwealth University in Richmond. Steve Helber/AP

Universities don’t just produce human capital and innovation. They also promote democratic values in their communities, according to a new study.

The knowledge, talent, and ideas that power urban economies do not emerge out of thin air: They are shaped and organized by great research universities. Universities have long played a role in educating people and contributing to a more civilized, tolerant, and democratic society. And in more recent decades, research universities like Stanford and MIT have been credited with helping spur the development of tech clusters in the Bay Area and around Boston. But today, universities play an even more central role as catalysts in the development of advanced urban economies.

A new study by economists at the London School of Economics details just how a big a role universities play in urban economic development. It finds that universities themselves, rather than the innovation or human capital they help produce, actually have a demonstrable impact on economic output, and, even more interestingly, on democratic values.

To get at this, the study mines an incredibly rich trove of historical data from the World Higher Education Database (compiled by the International Association of Universities in conjunction with UNESCO), which covers some 15,000 universities across 1,500 regions in 78 countries. While the dataset goes all the way back to the 11th century, when the term “university” was first used, the researchers focus on the period from 1950 to 2010, when the university began to take on more of a direct role in technological and economic development. The study employs a measure of “university density”—simply the number of universities per capita—which it then correlates to factors including economic performance, innovation, and democratic values. (The authors note that a disadvantage of this measure is that it does not reflect either the size or quality of universities.)

A key finding of the study is that in regions around the world, the greater the university density, the higher the level of economic output.

This would seem to be fairly obvious. We’d surely expect that more developed and affluent places would simply have more universities. But the study shows that university density has an independent effect on economic growth, even after controlling for obvious factors like population size or the level of economic development, as well as for less obvious ones like the presence of oil and gas reserves, overall health and wellbeing, the presence of a capital city, and even proximity to the ocean. In other words, it’s not just that universities are a reflection of economic development: They are a key contributor to it.

This is borne out in the historical data. Nations and regions with more universities in 1960 experienced higher economic growth in the ensuing decades. Over the course of the study period, “Doubling the number of universities per capita is associated with over 4% GDP growth.” In fact, the economic benefits of universities “spill over” into adjacent regions, and sometimes even nations, the study notes.

There are three primary channels through which universities are traditionally thought to contribute to economic growth. The first is simply by creating demand for goods and services. As large anchor institutions, universities generate a great deal of economic activity simply through their day-to-day operations. The second is by adding to the supply of educated people and thus bolstering the supply of human capital in a particular region. And the third is by generating innovations, either directly, through students and faculty, or indirectly, by attracting entrepreneurs and innovators.

What’s striking is that the study finds little or no substantial economic effect from any of these three key channels. It finds virtually no evidence that universities spur economic development by generating demand. It finds only limited evidence that universities contribute to economic growth by adding to the supply of human capital. For example, a 1 percent increase in university density yields just a 0.4 percent increase in college graduates. And it finds limited evidence that universities add to economic growth by spurring innovation, as measured by patents.

But—and this is a very big and important “but”—despite all of this, universities still make a substantial contribution to economic growth and development, which apparently occurs beyond these three factors. Simply put, a university’s contribution to the regional economy is much more than the simple the sum of its parts. Indeed, its economic impact may have less to do with direct economic contributions in terms of human capital and innovation and more to do with the broader socio-cultural milieu they usher in.

My own research has long found that that universities contribute to regional economies not just through their effects on technology and talent, but by reinforcing tolerance—the openness of places to different kinds of people, different kinds of ideas, and different lifestyles. Even though they themselves may at times seem rather averse to change, universities help to instill values of tolerance and fairness not only in their own populations but in the surrounding community.

Perhaps the most interesting conclusion of the study is that universities help to strengthen and reinforce democratic ideals and values. It finds a large and significant statistical association between university density and approval of a democratic system (based on measures from Ronald Inglehart’s World Values Survey). In fact, university density is more strongly associated with democratic values than educational attainment—a striking result. In other words, having more universities contributes to the belief in democracy above and beyond what is associated with a more highly educated population and a more advanced and affluent society.

The upshot of the study is this: In cities across the world, universities are significant contributors to economic and social progress, but not in the ways we typically think. It is not simply by educating people or generating new innovations that universities contribute to our society, but by helping to instill a culture of tolerance, collegiality, and open-mindedness. To my mind, it is this culture of openness to different kinds of people and new and challenging ideas that ultimately helps to power economic and social progress.

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