Over the past century, higher education has grown from an opportunity available to a small minority into an important driver of economic and social development.

In 1900, only about 1% of young people worldwide attended university. By the end of the twentieth century, this had increased to around 20%.

This growth was not simply the result of greater global wealth. Higher education has also helped economies grow by developing skilled workers, supporting innovation, improving productivity, and strengthening institutions.

Research by economists Anna Valero and John Van Reenen examined the relationship between universities and regional economic growth from 1950 to 2010. Their research used data from UNESCO’s World Higher Education Database, covering about 15,000 universities across 78 countries.

The findings offer important lessons for business leaders, policymakers, and executives.

Higher Education as an Investment

Higher education provides clear benefits to individuals. University graduates generally earn more than people without university degrees.

However, the benefits extend beyond individual income.

Universities develop human capital. In simple terms, this means the knowledge, skills, and abilities that help people work more effectively.

A skilled workforce helps businesses:

  • Adopt new technologies
  • Improve products and services
  • Solve problems more effectively
  • Increase productivity
  • Compete in international markets

For business leaders, universities should therefore be seen as more than places where people earn degrees. They are an important part of the economic system that supports business growth and competitiveness.

Universities and Regional Economic Growth

The research found a strong link between the number of universities in a region and its future economic performance.

Doubling the number of universities in a region was associated with an approximately 4% increase in future GDP per capita.

The researchers also found that this relationship could not simply be explained by successful regions being more likely to create universities.

Universities can also benefit neighbouring areas. The closer a region is to a university, the stronger the economic effect tends to be.

A university can become an anchor institution for its local economy. It can attract skilled people, support businesses, create jobs, purchase goods and services, and encourage the exchange of knowledge.

From Education to Productivity

The economic value of universities goes beyond the money spent by students and staff.

One of their most important contributions is the development of skilled workers.

When graduates join businesses, they bring knowledge, technical skills, and new ways of solving problems. These skills can help organisations become more productive and competitive.

This creates a clear connection between education and business performance.

A region with strong universities is more likely to provide businesses with the skilled workers they need, especially in industries that depend heavily on knowledge and technology.

The relationship can be represented simply:

Education → Skills → Innovation → Productivity → Economic Growth

This cycle is becoming increasingly important as businesses compete in a global economy shaped by technology, knowledge, and rapid change.

Universities as Drivers of Innovation

Universities also support economic growth through research and innovation.

They provide environments where new ideas can be developed, tested, and turned into practical solutions. They can also support partnerships between researchers, businesses, entrepreneurs, and investors.

The research found that regions with more universities also experienced increases in patenting. This suggests that universities can contribute to innovation and the development of new technologies.

Silicon Valley is a well-known example of a successful innovation ecosystem. Universities, technology companies, entrepreneurs, investors, and researchers have worked together to create new businesses and technologies.

The broader lesson is important for business leaders:

Innovation rarely happens in isolation.

Businesses can benefit when they build strong relationships with universities and research institutions.

For business schools, this connection is particularly important. Executive education can help managers apply academic research to real business challenges and make better decisions.

Universities and Society

The influence of universities extends beyond business and economic growth.

The research also found a relationship between a stronger university presence and more pro-democracy attitudes among people living in surrounding regions. This effect was not limited to students and graduates.

Universities bring people together and expose communities to new ideas and different perspectives. They can encourage discussion, research, debate, and the exchange of knowledge.

This also matters to businesses.

Successful businesses operate within wider social and economic systems. They depend on effective institutions, skilled workers, social stability, and environments where people can exchange ideas.

The Cost of University Expansion

Building and maintaining universities requires significant investment. Policymakers therefore need to consider both the costs and the potential benefits.

Research in the UK estimated that adding one university to each of the country’s ten regions could increase national income by about 0.7%.

Using 2010 figures, this was equivalent to approximately £11.3 billion in additional national income.

The estimated annual cost, based on average university expenditure, was around £1.6 billion.

These figures do not mean that every new university will produce the same results. However, they demonstrate the potential economic value of investing in higher education.

What Business Leaders Can Learn

The growth of higher education offers several important lessons for executives.

1. Talent drives competitiveness

Skilled people are one of the most valuable assets available to an organisation.

Businesses that invest in developing their people are better positioned to improve productivity and compete in changing markets.

2. Innovation requires collaboration

Universities, businesses, governments, investors, and entrepreneurs can achieve more when they work together.

Strong partnerships can help turn research and ideas into new products, services, and businesses.

3. Knowledge creates wider benefits

The value of education does not stop with the person who receives it.

Knowledge, skills, ideas, and professional networks can spread through organisations, industries, and communities.

4. Global connections matter

World-class universities have benefited from international students, academics, research partnerships, and collaboration across borders.

Access to global talent and knowledge can strengthen innovation and productivity. For businesses, maintaining these connections can also improve access to skills, ideas, and international markets.

The Executive Perspective

For business leaders, the important question is no longer whether education matters to economic growth.

The bigger question is how businesses, universities, and governments can work together to turn knowledge and talent into economic value.

Universities develop the skills businesses need. They conduct research that can lead to new technologies and business models. They support entrepreneurs and innovation. They also contribute to the wider economic environment in which businesses operate.

The evidence from recent decades suggests that the benefits of university expansion can outweigh its costs.

For emerging and established economies, investment in higher education should therefore be viewed as an investment in more than education.

It is an investment in:

Human capital. Innovation. Productivity. Competitiveness. Long-term economic growth.

Source: The Conversation