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The expenditure impacts of individual higher education institutions and their students on the Scottish economy under a regional government budget constraint : homogeneity or heterogeneity?

Hermannsson, Kristinn and Lisenkova, Katerina and McGregor, Peter and Swales, John (2013) The expenditure impacts of individual higher education institutions and their students on the Scottish economy under a regional government budget constraint : homogeneity or heterogeneity? Environment and Planning A, 45 (3). 710 – 727. ISSN 0308-518X

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Abstract

Comparing each of the twenty Higher Education Institutions (HEIs) in Scotland as separate sectors in an Input-Output table suggests their expenditure patterns are homogenous and that the apparent heterogeneity of their impacts is primarily driven by scale. However, a disaggregation of their income by source reveals a disparity in their dependence upon funding from the devolved Scottish Government and their ability to draw in income/funding from external sources. Acknowledging the binding budget constraint of the Scottish Government and deriving balanced expenditure multipliers reveals large differences in the net-expenditure impact of HEIs upon the Scottish economy, with the source of variation being the origin of income. Applying a novel treatment of student expenditure impacts, identifying the amount of exogenous spending per student, modifies the heterogeneity of the overall expenditure impacts. On balance this suggests that the impacts of impending budget cut-backs will be quite different by institution depending on their sensitivity to public funding. However, predicting the outcome of budget cutbacks at the margin is problematic as we do not know whether public and external incomes are complements or substitutions (and indeed this may vary between individual HEIs).