Economic impact of universities’ contribution to innovation

27 Sep 2018

Universities play a pivotal role in New Zealand that extends beyond educating the workforce. University research plays a crucial role in facilitating innovation, while the human capital that universities develop is critical for the future productivity of the New Zealand economy.

Universities New Zealand commissioned Deloitte Access Economics to conduct a literature review to inform the causal link between universities and innovation, as well as provide an assessment of the economic impact of university expenditure on research on local economies, and the wider New Zealand economy.

While New Zealand literature is limited, international empirical evidence indicates that universities contribute much more to innovation in the local economy than just educating the work force. This report fills an important gap in the literature by providing more understanding of the economic impact of universities’ research expenditure on the New Zealand economy.

Existing international literature establishes a consistently positive and significant relationship between universities and innovation in the local region where a university is situated.

The literature establishes two key ways in which universities contribute to a region’s innovation:

  • Commercial products: New services and technologies developed from university research or intellectual property (IP) contribute directly to innovation. The majority of studies that explore the contribution of universities to regional innovation focus on the role universities play in supporting product development.
  • Human capital: There are many relationships through which universities can transfer knowledge. Many argue relationship with local industry and links to former students contribute more to local innovation than direct commercial activity.

To explore universities’ contribution to innovation in New Zealand, this report quantified the economic impact of university research expenditure. While enhanced human capital may be a more prevalent driver of innovation, the difficulty of quantifying the relationship excluded it from this economic impact analysis.

The contribution of university research output – measured as recurrent expenditure on higher education research and development (R&D) – to economic output has been estimated using an econometric model of growth across countries.

University investment in R&D plays a significant role in the New Zealand economy. Increases in research investment by New Zealand universities over the last three decades have increased real gross domestic product (GDP) by a cumulative $129 billion.

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