Slide 1 - Center of Excellence in Finance

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					Economic Performance and
   Tertiary Education
                    Shahid Yusuf
                     World Bank

 EU Conference on Quality of tertiary education and the
  economic policy agenda, Ljubljana, April 2nd, 2008.
            Sources of Growth
   Middle and high income countries are deriving
    most of their growth impetus from relatively
    few urban centers.

   With populations stabilizing or on the verge of
    decline and investment rates stagnating, most
    of the growth will have to come from
    increasing total factor productivity (TFP).
      Geography of Productivity
Two major, and interrelated sources of productivity growth are:
 Urban agglomeration effects (doubling the density of economic
  activity can raise TFP growth by 0.42 percent p.a. doubling
  distance from metro centers reduces productivity by 15 percent);
 Innovation of all kinds (product, process, services related or with
  respect to organization).

Innovation as measured by patenting or the introduction of new
   products/services, is greater in the larger cities and cities with
   higher employment intensity (96 percent of U.S. patents from
   metro areas and the 25 largest cities with 12 percent of the
   population, accounted for 20 percent of patents). However, there
   are exceptions e.g. Turku in Finland and Cambridge U.K.- where
   universities and local authorities have created innovative
   industrial clusters.
                   Role of the
               Urban Environment
Large urban centers (or a sub-national region where scale effects
  are achieved through the networking of smaller cities) confer
  several advantages:

   Scale and diversity of local market;
   Urbanization economies (from industrial diversity);
   Localization economies (from specialization, often in satellite or edge cities
    in a metro area, or in polycentric sub-national regions with multiple
    interlinked cities);
   Concentration of universities;
   Density of labor market;
   Quality of infrastructure and international connectivity;
   Services providers (finance, legal, engineering, managerial) (Business
    services tend to concentrate more in urban centers.); and
   Concentration of company HQs.
            Human Capital and
              Urban Capital
   Within urban settings, technical skills and R&D are important

   Knowledge is the principal driver of productivity. Urban
    environment, infrastructure, and services determine knowledge
    spillovers and multiplier effects.

   Investment in the quality of primary/secondary education
    linked with economic performance. Quality of education,
    including tertiary education, affects innovativeness.

   Tertiary education attainment associated with high earnings
    premium and low unemployment rates.
             Elements of a virtuous
                 growth spiral
Knowledge producers, intermediaries and firms.

   New basic research/tacit knowledge diffuses slowly,
    hence universities and research institutes generating
    ideas are at the core of the productive urban

   Translating innovation into commercial
    products/services is the function of entrepreneurial
    firms doing applied research and development.

   Promoting an uptake of university research is a
    function of intermediaries- and also firms.
        Urban Knowledge System:
             the University
   Universities with research capabilities are a necessary
   They produce many of the ideas. Education levels of an
    urban region correlated with entrepreneurship, and can
    stimulate R&D by firms.
   The best research universities depend on strong graduate
    programs, large R&D budgets and effective allocation
    mechanisms, competitive pressures, and autonomy.
   Special programs catering to firms as pursued by Stanford
    and MIT, help raise funds from the business sector,
    leverage talent in firms and build local partnerships.
        Urban Knowledge System:
         the University (Contd.)
   Specialization in core areas and departments and networking
    among second tier universities, a means of building
    technological capabilities in the absence of large world class
    universities. Such networking which allows differentiation and
    specialization among providers of tertiary level training, can
    build spheres of excellence and needed critical masses of
    complementary skills. Medicon Valley (Copenhagen and the
    Skane region of Sweden an example).
   Multidisciplinary programs are increasingly important for
    raising productivity of scientists and engineers.
   Networking and knowledge circulation among universities via
    formal and informal channels, a big plus e.g. co-authorship,
    multi-university research teams, the EU’s Erasmus program
         Urban Knowledge System:
            The Intermediaries
   Municipal governments determine business environment, quality of
    services, tax incentives and attractiveness of amenities for knowledge
    workers. Through inter-jurisdictional coordination, they can build,
    integrate and maintain infrastructure.
   University technology licensing offices (TLOs) can serve as
    matchmakers between researchers and potential users.
   Regional, industrial bodies and other institutes can provide incentives
    and mechanisms for universities and firms to link-up and pool research
    assets (TAMA Association in Japan, TEFT program in Norway,
    Georgia (USA) Research Alliance of six major universities, UCSD
    CONNECT, the IC2 Institute at UT Austin and ITRI in Taiwan).
    SPINNO/TEKES (Finland) assists new starts.
   Venture capitalists and angel investors can provide start-up capital,
    coaching and contacts.
   Developers work with local public authorities to create infrastructure
    and affordable housing for urban industry and knowledge workers.
   Other services providers underpin efforts of firms.
         Urban Knowledge System:
   Bulk of applied research done by firms (between 50 and 80
    percent). Access to universities advantageous because open
    innovation more fruitful. However, research intensity depends on
    industry; services and resource based industries do little research.
    Most R&D and patenting in few industrial categories. In the EU,
    42 percent is by electronics, engineering, vehicles and telecom.
   Proactive firms with own (exploratory) R&D programs and
    strategies based on innovation, better able to seek out ideas and
    work with universities. Major firms can serve as anchors for a
    regional innovation system (within a country as in the US, or
    across countries as with the Medicon Valley). Examples are
    Novo Nordisk and Astra Zeneca, in Medicon.
   Firms headed by those with tertiary education likely to hire
    skilled and technical workers and encourage innovation.
   Firms operating in an urban region with significant
    industrial/technological breadth, more likely to diversify into new
    fields, once old ones are commoditized and rents squeezed.
                Sustaining Growth
   National objective is not a brief spurt in growth, but a system that
    maintains growth via productivity increase, fed by innovation.
    Tax incentives, an education strategy, public support of R&D and
    IP (intellectual property) institutions can assist.
   Quality and research intensity of national universities and
    openness to international students and competition (national as
    well as regional), is a way of sustaining flow of ideas. However,
    early foundation of creative and STEM (science, technology,
    engineering and math) skills forms the basis for gains from
    higher education and the utility of lifelong learning programs.
   Urban capabilities and diversity can attract large firms and new
    entrants, and promote innovation.
   Urban innovativeness can create linkages to and energize agro-
    based industries, especially food processing and industrial
           Share of Government R&D
         Budget allocated to Universities,
            and Total Patents (2006)

        Country      Allocation to R&D   Total Patents
     Switzerland           59.94            2205
        Sweden             54.27            1501
        Greece             39.59              30
    Czech Republic         26.31              21
Source: SourceOECD
“For most countries today, human resource
  development and human capital formation
  is either extremely important, absolutely
  vital or a matter of life or death”.

(Prime Minister of Malaysia’s Address to
  Association of Commonwealth Universities

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