The impact of higher education institutions (HEIs) on the Scottish
economy: New evidence from an HEI-disaggregated input-output approach
Kristinn Hermannsson, Katerina Lisenkova, Peter McGregor & J Kim Swales
Fraser of Allander Institute and Department of Economics,University of Strathclyde
Scotland’s universities and the economy: Impact, value and challenges
Court senate suite, Colling building, University of Strathclyde, Glasgow
Tuesday 30th June 2009
Outline
• Background and methods
• HEIs as a production sector
• Characteristics of HEIs
• Total spending impact
• Policy simulations
Scottish Input-Output Analysis
• Separately identify HEI sector within the 2006 Scottish IO accounts :– Instructive as a set of accounts– Basis for all other multi-sectoral modelling– Perform conventional demand-driven analysis
• Disaggregate the Scottish IO sector into the component institutions
Multipliers and assumptions• Multipliers:
– Type I: Direct and indirect effects– Type II: Direct, indirect and induced effects (households
endogenised)• Assumptions:
– Constant returns to scale– Fixed coefficient production technology– Constant coefficients in consumption (Type II multipliers)– No supply constraints
• Interpretations:– Long run regional (Supply side has adjusted through changes in
factor stocks)– Short run with excess capacity
GVA & employment 2006Sector GVA £ m GVA %
Employment FTE employment %
Primary and utilities 4,295 4.7% 60,593 3.0%
Manufacturing 12,594 13.8% 230,001 11.5%
Construction 5,731 6.3% 123,655 6.2%
Distribution and retail 9,797 10.7% 287,612 14.4%
Hotels, catering, pubs, etc. 3,146 3.4% 124,603 6.2%
Transport, post and communications 6,341 6.9% 119,718 6.0%
Banking and financial services 7,312 8.0% 103,133 5.2%
House letting and real estate services 7,699 8.4% 27,346 1.4%
Business services 9,291 10.2% 247,176 12.4%
Public sector 20,046 21.9% 539,924 27.0%
HEIs 1,276 1.4% 34,011 1.7%
Other services 3,953 4.3% 99,614 5.0%
Total 91,482 100% 1,997,386 100%
Output multipliers
0
0.5
1
1.5
2
2.5
3
3.5
Prim
ary
and
utilit
ies
Man
ufa
cturing
Const
ruct
ion
Dis
trib
ution a
nd
reta
il
Hote
ls, c
ater
ing,
pubs,
etc
.
Tra
nsp
ort
, post
and
com
munic
atio
ns
Ban
king a
nd
finan
cial
ser
vice
s
House
lett
ing a
nd
real
est
ate
serv
ices
Busi
nes
s se
rvic
es
Public
sec
tor
HEIs
Oth
er s
ervi
ces
Type I Type II
Cost breakdown by sector
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Prim
ary
and
utilit
ies
Man
ufa
cturing
Const
ruct
ion
Dis
trib
ution a
nd
reta
il
Hote
ls, c
ater
ing,
pubs,
etc
.
Tra
nsp
ort
, post
and
com
munic
atio
ns
Ban
king a
nd
finan
cial
serv
ices
House
lett
ing
and rea
l est
ate
serv
ices
Busi
nes
sse
rvic
es
Public
sec
tor
HEIs
Oth
er s
ervi
ces
Gross operating surplus
Compensation ofemployees
Imports
Taxes on products andproduction
Intermediate purchases
Income by sector
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Prim
ary
and
utilit
ies
Man
ufa
cturing
Const
ruct
ion
Dis
trib
ution a
nd
reta
il
Hote
ls, c
ater
ing,
pubs,
etc
.
Tra
nsp
ort
, post
and
com
munic
atio
ns
Ban
king a
nd
finan
cial
ser
vice
s
House
lett
ing a
nd
real
est
ate
serv
ices
Busi
nes
sse
rvic
es
Public
sec
tor
HEIs
Oth
er s
ervi
ces
Exports
Local final demand
Intermediate demand
Exports & domestic demand
0
50
100
150
200
250
300
350
400
450
Edin
burg
h
Gla
sgow
Str
athcl
yde
Dundee
Aber
dee
n
St A
ndre
ws
Her
iot-
Wat
t
Cal
edonia
n
Stirlin
g
Nap
ier
Rober
t G
ord
on
Pai
sley
SA
C
UH
I
Aber
tay
QM
UC
Bel
l Colle
ge
GSA
EC
A
RSA
MD
£ m
Total exports
Domestic demand
Exports by origin and type
0
20
40
60
80
100
120
140
160
Edin
burg
h
Gla
sgow
Dundee
Str
athcl
yde
St A
ndre
ws
Aber
dee
n
Her
iot-
Wat
t
Stirlin
g
Cal
edonia
n
Nap
ier
Rober
t G
ord
on
SA
C
Pai
sley UH
I
Aber
tay
QM
UC
EC
A
GSA
RSA
MD
Bel
l Colle
ge
£ m
ROW Tuition
RUK Tuition
ROW Research
RUK research
Hypothetical Extraction
• Hypothetical extraction of individual Scottish HEIs– Sector is replaced by
imports
• Expenditure impacts of all students– Debateable what
assumptions to make about student spending
GDP £mEmployment FTE
HEI spending 2,404 80% 51,570 85%
Total student spending 603 20% 9,196 15%
SCO 369 12% 5,628 9%
RUK 72 2% 1,095 2%
ROW 162 5% 2,472 4%
Total impact 3,007 100% 60,766 100%
% 3.3% 3.4%
• In paper published in FAI Commentary the GDP impact of Dundee University is said to be £175m but is in fact £196m
• Based on this it is claimed the University of Aberdeen is the 4th biggest in Scotland based on GDP impact (£189m), when in fact it is the 5th biggest and Dundee is 4th
Erratum
SCO RUK ROW SCO RUK ROW
Aberdeen 189 24.97 5.18 11.53 230 4,553 443 92 205 5,293
Abertay 38 8.90 1.13 3.97 52 960 158 20 71 1,208
Bell College 25 10.42 0.07 0.07 36 667 185 1 1 855
Dundee 196 31.04 6.70 10.90 245 4,878 551 119 193 5,741
ECA 18 2.62 1.48 2.22 24 436 47 26 39 549
Edinburgh 498 33.50 21.58 23.56 577 11,274 595 383 418 12,670
Caledonian 119 41.81 2.69 5.64 169 2,783 742 48 100 3,673
GSA 19 2.53 1.47 1.78 25 495 45 26 32 597
Glasgow 375 48.31 7.34 12.81 443 8,140 858 130 227 9,355
Heriot-Watt 116 4.79 2.42 24.25 147 2,625 85 43 431 3,183
Napier 96 21.16 2.28 13.17 133 2,239 376 40 234 2,889
Paisley 69 23.42 0.49 3.46 97 1,693 416 9 61 2,179
QMUC 33 9.62 1.78 3.54 48 794 171 32 63 1,059
Robert Gordon 89 23.05 2.08 10.05 124 2,143 409 37 178 2,767
RSAMD 12 1.48 0.52 0.51 15 316 26 9 9 361
St Andrews 129 8.05 8.67 11.93 158 3,081 143 154 212 3,589
SAC 51 2.11 0.16 0.15 54 1,305 38 3 3 1,349
Stirling 99 17.43 3.21 5.83 125 2,494 309 57 103 2,964
Strathclyde 225 41.86 2.34 16.29 285 5,223 743 42 289 6,297
UHI 28 12.24 0.29 0.56 41 973 217 5 10 1,205
Total impact 2,425 369 72 162 3,029 57,071 6,556 1,276 2,880 67,783% of SCO total GDP/employment
2.7% 0.4% 0.1% 0.2% 3.3% 2.9% 0.3% 0.1% 0.1% 3.4%
Student impacts
Total
Employment FTE
Student impacts
Total
GDP £ m
HEI spending
HEI spending
Impact of additional £100m on HEIs
• Aggregate multiplier effects of £100 million spent on HEIs (in general): output, GDP, employment, output multiplier, employment multiplier– Funded by increased exports
• Research
• External students
– Funded by cutbacks in government expenditure
GDP impactsdisaggregated by sector
Employment impacts disaggregated by sector
Impact of HEIs exports (1)
• HEI exports– RUK & ROW research funding– Ex-EU and RUK tuition fees
• 25% of Scottish HEIs income is exports– 2006: £ 510 m– Increased by a third from 2002
Impact of HEIs exports (2)
Exports (£m)GDP impact
(£m)Employment impact FTE’s
510 611 14,370
1.0% 0.67% 0.72%
Conclusions & future research• HEIs are a significant sector in terms of their
impacts as businesses• The economic characteristics of HEIs are not the
same as the public sector• HEIs export effectiveness has immediate and
significant repercussions for host economies• Future work and work in progress:
– Application to other UK regions– Analysis of interregional impacts– Social accounting matrix (SAM) analyses– Sub regional application: Glasgow