There are few better drivers of economic competitiveness

The United States is home to more than a third of the world's top 400 research universities. But how exactly do universities factor into the wealth, innovation, and economic competitiveness of their host nations?

To get at this, my colleague Charlotta Mellander and I looked into the statistical associations between a nation’s concentration of leading universities and broader measures of economic competitiveness, innovation, human capital and social well-being. We based our analysis on a statistical technique that enables us to control for the effects of population size. While correlation is not causation (none of these findings prove that anything more than an association exists) the results are nonetheless striking. In fact, they number among the very strongest I have ever seen in this type of analysis.

The concentration of great universities in a nation is extraordinarily closely related to its economic competitiveness. It is closely associated with economic output per capita (.74), total factor productivity (.77) and overall competitiveness (.71) based on the Global Competitiveness Index developed by Harvard’s Michael Porter.

Universities are also a key force in technology. A nation’s concentration of leading universities is closely associated with its level of innovation, measured as patents (.78) and its research and development expenditures (.74). While Stanford’s role in Silicon Valley-style high-technology entrepreneurship is the stuff of legend, universities are closely associated with the entrepreneurial level of nations. The concentration of world-class universities is closely associated with a nation’s level of entrepreneurship as measured on the Global Entrepreneurship Monitor (.69).

Technology is one key factor in economic competitiveness, but a nation’s level of talent constitutes the second key in economic development. Universities play a central role in both generating and attracting talent. The concentration of leading universities is closely associated with a nation’s overall level of human capital (.38) and even more so with the share of its workforce in knowledge, professional and Creative Class jobs (.76). Conversely, it is negatively associated with the share of employment in blue-collar working class jobs (-.42). Universities thus are a key marker of a nation’s shift to a more knowledge-driven, post-industrial economic and workforce structure.

Tolerance is the third key component of economic development. Open and diverse societies benefit from a freer flow of ideas, a more meritocratic economic structure and the ability to attract and harness talent from a wide range of sources. Roughly half of all Silicon Valley high-tech start-ups count a new immigrant on their founding team, according to recent studies. Great universities are a critical component of open and tolerant cultures, that function as meritocracies with a free and open flow of ideas. Not surprisingly, a nation’s concentration of leading universities is also closely associated with Gallup surveys that measure tolerance of racial and ethnic minorities (.68) and gays and lesbians (.71).

Universities appear to function as an important social leveler. Nations with larger numbers of great universities have lower income inequality (with a negative correlation of -.475 between the two). And universities are part of the mix of institutions that lead to higher levels of happiness and well-being across societies. Nations with more great universities have considerably higher levels of happiness and well-being (the correlation between the two being .66). Perhaps this flows from the fact that universities contribute to and reflect higher levels of innovation and competitiveness as well as more open and meritocratic cultural environments.

The more and the higher quality a nation’s universities, the more innovative and economically competitive it is, and the more open, egalitarian and happier it is as well. The university remains a central hub institution of the knowledge economy, playing key roles in technology, talent and tolerance. Despite their rapid economic growth and predictions of further economic ascendance, the BRICs are particularly challenged on this score. On this critical front at least, prognostications of American decline are surely overblown. 

The United States has daunting economic and political problems to contend with, but its huge edge in world class universities lends it a considerable advantage in attracting the world’s top talent and generating cutting-edge innovation well into the future.

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