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Creation of Knowledge

The research activities of universities produce knowledge that advances science and technology and results in innovation. Contributions to the stock of knowledge add value to a region apart from the human capital considerations. New products and processes are created. The ability of the community to compete for economic development, particularly related to the knowledge economy, is enhanced. Increased funding from the federal government and other nonlocal sources also benefits the community.

Salter and Martin (See Salter, A. and B. Martin, "The Economic Benefits of Publicly Funded Basic Research: A Critical Review," Research Policy 30 (March 2001): 509-532) note six forms of benefits from publicly funded research:

  • Increasing the stock of knowledge. Basic research is a source of new useful knowledge.
  • Training skilled graduates. Skills developed, particularly by graduate students, in the production of basic research can lead to economic benefits as individuals move from basic research to working in private companies.
  • Creating new instrumentation and methodologies. The transfer of new instruments and methods from basic research to industry can open technological opportunities or alter the pace of technological advance. The tacit knowledge and skills generated during basic research are especially important in emerging areas of science and technology.
  • Forming networks and stimulating social interaction. Participation in basic research is essential if one is to obtain access to international networks of experts and information.
  • Increasing the capacity for scientific and technological problem solving. Basic research may be especially useful in developing the ability to solve complex problems confronted by firms.
  • Creating new firms. Basic research may lead to the creation of spin-off companies to which academics can transfer their skills, tacit knowledge, and problem-solving abilities.

The most important source of economic progress over the past two centuries has been industrial innovation. Improvements in industrial technology, in turn, have been driven by advances in basic science, many of which have been made at universities. Over the long run, the economic benefits of industrial innovation and university research accrue largely to consumers throughout the world in the form of lower prices and a greater variety of available goods.

Evidence of local economic impacts from university research comes from a variety of sources: case studies of local industries born from the ideas of university scientists, university records of income earned and new businesses formed from university research findings, and econometric evidence identifying a statistical association between the level of economic activity in an area and the presence of a research university. The evidence shows that university research programs can have significant local economic impacts.