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So what is the economic impact of universities? 

That was the question posed by London School of Economics policy fellow Anna Valero and her colleague John van Reenen of MIT in a recent academic paper.

In reviewing previous evidence, Dr Valero suggest that there are various ways in through which universities can affect economic growth. The most obvious is that higher education produces the skilled workers required by businesses and that this can have a boost to local economies given that students who graduate are more likely to seek work in the area where the university is located.

Another important role is that of developing and diffusing innovation with universities being crucibles for research and development (R&D) and there is increasing evidence of this being commercialised either through links with local firms or via academics spinning out to create their own businesses. 

This role is particularly important in Wales where universities are responsible for 40% of the total R&D expenditure within the economy as compared to 23% for the UK as a whole.

Universities themselves, as large institutions, also make a direct economic contribution to any region through their purchase of local goods and services and the spending by students and staff. In Wales, a recent analysis showed that Welsh universities contribute more than £5 billion to the Welsh economy and generated 62,000 jobs in just one year.

However, it is through the analysis of universities in nearly 1,500 regions in 78 countries that this paper makes its most important contribution, especially in relation to the finding that a rise in university presence is positively associated with faster subsequent economic growth. 

The authors shows that a 10% increase in the number of universities is associated with over 0.4% higher economic growth per capita in a region. Simply put, it is estimated that the economic benefits of university expansion are likely to exceed their costs.

This finding is good news for the city of Newport which has faced its own economic challenges over the last few years, especially with the closure of retail space in the city centre. 

Recently, the council has announced that it will be making a bid to the UK Government’s Levelling up fund to create a National Technology Institute (NTI) in the city, providing around 3,000 students with skills and resources needed to align with the needs of high-tech businesses and employers in and around the Newport area. 

Its aim is to be an alternative to traditional university and existing post-16 education routes by working closely with local firms, shaping the curriculum to include skills needed in the digital industries of the future, and providing employment pathways to graduates into the growth sectors of the economy.

Initially developed back in 2019 by Professor Simon Gibson, chair of the business-led Newport Economic Network, this could be a game-changer in so many ways for the city and more importantly in its drive to become a magnet for data driven companies in the future.

And whilst this proposal is to be welcomed not only in Newport, it will also have a positive effect in the surrounding Gwent Valleys especially as Dr Valero’s paper suggests that any new higher education institution not only has an impact on the immediate area in which it is located but also will have spillover effects into neighbouring regions. 

By creating the digital workforce of the future within the city, there will be opportunities for the most entrepreneurial students from the NTI to create their own businesses in the region. 

For example, if only 5% of those studying decided to start their own businesses, that could mean 100 new firms that are developing digital products and services being generated every year, with many subsequently being in a position to employ other graduates emerging from the NTI.

Also, by having graduates with the relevant digital skills that employers demand, businesses could be attracted to relocate to the city and other parts of South East Wales because of the direct access to future skilled employees. This is not surprising as the attraction of talent is still seen as the main challenge by industry leaders around the World as they try to get to grip with the growing importance of digital technology that has been accelerated as a result of the recent pandemic. 

Given this, the development of the NTI, especially if the curriculum is developed closely with industry standards, is creating an opportunity to reshape the city as a world class location for the development of digital skills.

And with the number of students in Newport having declined significantly in recent years, the new institution could have a direct economic impact on the city from the spending power of those new students studying in the city. With research commissioned by the National Union of Students indicating that each student spends £10,000 annually in any locality (excluding rent and tuition fees), the NTI could, when fully operational, generate an additional £30m per annum.

Therefore, universities have an important part to play in the regeneration of local economies around the World through their direct spending, providing the skilled workers required by businesses, and boosting innovation through entrepreneurship and links with local firms. 

More importantly, the creation of a new and very different type of higher education institution in Newport has the potential to do all of this for the South East Wales economy especially if, as indicated, it reflects the real needs of employers and provides the digital skills that can make difference to any business.

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