Economic Performance and
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
Role of the
Large urban centers (or a sub-national region where scale effects
are achieved through the networking of smaller cities) confer
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
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
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
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:
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:
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.
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
“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