Impacts of Higher Education Institutions on Local Population and Employment Growth

We examine the relationship between higher education institutions (HEIs) and local population and employment growth, using a sample of fifty-seven New Zealand territorial local authorities between 1986 and 2013. We account for HEI endogeneity by estimating with difference generalized method of moments; by including lagged growth plus a large set of other controls; and by including official demographic projections to account for growth-related factors, including university student numbers, which were projected by official statisticians but are otherwise unobservable to the econometrician. Holding all else equal, we find that a greater share of university equivalent full-time students (EFTS) to working-age population raises population and employment growth. At the means, a one percentage point increase in the university EFTS share is associated with a 0.19 (0.14) percentage point increase in the annual average population (employment) growth rate. This (significant) relationship holds under virtually all alternative specifications, including different HEI activity definitions, samples, and specifications. Growth related to polytechnic activity is much weaker and is estimated far less precisely. Consistent with urbanization (but not localization) externalities, we find no evidence for complementarities between HEI activity and several innovation-related area characteristics, possibly reflecting the primary industry base of New Zealand