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IV Benefits & Financing

The Economic Impact of Higher Education Institutions

Qiantao Zhang, Charles Larkin, and Brian M. Lucey


From a historical perspective the economic way of thinking has not been prevalent in the development of, or policymaking decisions within, the Irish higher education sector. There is a lack of economic analysis underlying government decisions to expand the size of the sector, to cut exchequer funding, or to strengthen the role of the sector in building the knowledge-based economy. Nevertheless, we argue that greater importance should be placed on understanding the economic impact of students, institutions and the higher education sector as a whole, especially in the current period of funding crisis, as termed by some scholars as well as media. Without such understanding, the relevant policies

Q. Zhang (*) • C. Larkin

Trinity Business School, Trinity College Dublin, Dublin, Ireland B.M. Lucey

Trinity Business School, Trinity College Dublin, Dublin, Ireland Faculty of Economics, University of Ljubljana, Ljubljana, Slovenia

© The Author(s) 2017

J. Cullinan, D. Flannery (eds.), Economic Insights on Higher Education Policy in Ireland, DOI 10.1007/978-3-319-48553-9_8

and practices that are intended to address challenges faced by the sector would probably be unable to achieve their full potential.

Since the establishment of Trinity College Dublin in 1592, the higher education sector in Ireland has grown significantly in size. The rapid expansion of third-level education, however, did not begin until the 1960s, when the founding of institutes of technology (ITs) remarkably increased the number of higher education institutions (HEIs) in the country. Meanwhile, Ireland has seen its HEIs evolve from being concentrated in a few large cities to being dispersed throughout the country. In 1960, a total of 11 institutions were situated within five Irish counties, while within the next two decades the number of HEIs more than doubled to 24, spanning across 12 counties. Formerly known as Regional Technical Colleges (RTCs), ITs were created to provide courses mainly aimed at filling gaps in the industrial manpower structure, particularly in the technician area.

Along with the size expansion of the sector, the increase in student numbers was to continue from the early 1970s to the present day. The latest data show that 214,694 students enrolled at Irish HEIs in 2014-15 and the sector employed 17,000 core staff, including over 9000 academic staff (Higher Education Authority [HEA] 2015). Following the milestone event of introducing free higher education in 1996 by the Minister for Education, the amount of government funding in the sector increased considerably during the Celtic Tiger years. The economic crisis in 2008 overturned the trend, with state grant income to the sector dropping by 25% in the five-year period to 2011 and tuition fees now overtaking state grants as the highest source of income (Grant Thornton 2014).

Universities and ITs in Ireland began to be considered as part of a national innovation, research and development industrial policy from the 1990s. Over a decade, the Universities Act 1997 and the Institutes of Technology Act 2006 were passed. Science Foundation Ireland (SFI) was established with the passage of the Industrial Development Act 2003. In 2006, the Department of Enterprise, Trade and Employment published the Strategy for Science, Technology and Innovation aimed at placing research and higher education at the core of Irish economic policy (Department of Jobs, Enterprise and Innovation 2006). This was followed by the Innovation Task Force, which reported in 2010, again placing the role of higher education in research and development (R&D) at the core of the Irish industrial policy.

Despite all these developments in the sector, little in the way of economic analysis has been undertaken. Presumption and inference were the norm—a presumption of more being better and inference from other jurisdictions, notably the UK. The expansion of the sector across regions was largely driven by the need for more technical and commercially linked training and upskilling, but we have not seen much analysis of the impact of those institutions on the regional economy. Similarly, few studies have examined the potential of a massive increase in the number of students attending HEIs leading to a crisis in higher education funding. National policies which call for greater contributions from universities and ITs to the economy have, to a large extent, not been supported by robust economic analysis. As Irish HEIs currently form an important part of the economic infrastructure and generate substantial economic activity, now is the time to undertake detailed economic analyses of the sector.

While there are many levels at which research could be focused, in this chapter we examine the economic impact of Irish HEIs. We incorporate both individual institutions and the university and IT sectors and aim to provide a broad overview of the impact of the sector. In the history of impact studies, two main methodological strands have been used, often concurrently—one relies on the use of input-output analysis, the other on a Keynesian multiplier approach. There is little existing modelling in the public domain in Ireland on university multipliers, except for the reports on the social and economic impact of two Irish HEIs (Viewforth Consulting 2014, 2015) and the study by Zhang et al. (2015) on the economic impact of the whole higher education sector. In contrast to these previous studies, this chapter instead adopts a Keynesian multiplier approach and is organised as follows: the methodology for the empirical estimation of our model is described in Sect. 8.2, followed by Sect. 8.3 which outlines the dataset collected for the analysis. Next, the results are presented in Sect. 8.4 and are compared with those of other international and national studies. Section 8.5 offers some concluding remarks.

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