The effect of institutions of higher education on the economic welfare of counties in the United States

Understanding the impact of colleges and universities has long been of interest to higher education administrators and public officials. Several approaches used to examine this issue are summarized. Studies of economic impact are reviewed which estimate the effects of the expenditures of institutions, their students, employees and visitors upon local income, sales, employment and tax revenues and are contrasted with the present study. The principle research question is whether the presence of institutions of higher education, examined by type and by control and by major object of expenditure, have an effect upon the economic welfare of the counties where they are located, as measured by the level of per capita income in those counties. Neoclassical regional economic theory is used to develop a model. In a cross-sectional analysis of U.S. counties, 1987 demographic and economic data are merged with 1987 higher education expenditure, employment and enrollment data in a national data base of county-level data. Ordinary least squares regression analysis is used to determine if the presence of higher education institutions is a cause of higher mean levels of per capita income in counties where they are located. Parameters are estimated for a national model and for each of four U.S. economic regions. The study finds that the presence of students depresses the reported level of per capita income in counties, especially those with four-year institutions. The effect of institutions upon economic welfare is positive, however, due to the positive effect of expenditures on research. The presence of private four-year institutions has the most positive impact upon county-level per capita income. The Northeast region has the highest density of counties with higher education institutions and, when compared with other regions, experiences the greatest positive impact of higher education upon county-level per capita income. Dichotomous variables representing urban and rural areas and public and private expenditures found that higher education in urban areas is a positive influence upon per capita income and that both public and private expenditures are positive and statistically significant in understanding inter county differences in per capita income. Whereas research expenditures of four-year institutions positively impact the level of per capita income, while the impact of two-year institutions is negative, instruction expenditures of two-year colleges are positive and statistically significant in explaining inter county differences in the level of business volume as measured by the level of per capita sales