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High research activity apparently is not a sufficient condition for a university to have large impacts on jobs and incomes in the local economy. Studies of the connection between university research and local economic activity suggest that certain complementary factors may need to be present if a university is to significantly affect the local economy.
Universities with the greatest local economic impacts are generally those with high quality research programs. The most compelling reason for technology-based firms to locate near universities is to facilitate tacit knowledge transfer from faculty who are on the leading edge of scientific breakthroughs. It is only these star researchers who have the power to determine firm location. University scientists with a national reputation are more likely to be able to attract venture capital, management, and the technical workers necessary to start new companies.
Agglomeration economies are known to be an important factor in the production of knowledge. Spatial concentration of research activity promotes the development of markets for specialized suppliers of materials, testing equipment, and even legal services. Agglomeration also helps to support informal channels of knowledge transfer. University research will be more productive and more likely to influence local economic activity if it takes place in an area with an existing concentration of corporate research activity and high-tech production.
Apart from the size of particular industries, the general size of an urban area affects the scale and productivity of local research. Areas with 1-to-4 million people produce twice as many patents per capita as do areas with a population less than 250,000. New product innovations are introduced disproportionately by firms in large metro areas. Studies also show population size to be a more important siting variable for high-tech companies than low taxes or low wages.
University culture and policies can have important effects on the extent to which faculty engage in and develop commercially relevant research. More universities are making use of equity arrangements when licensing university inventions. Many university-owned patents fail to generate significant income because faculty do not take the time to develop their ideas and concepts into a commercially viable product. When faculty have a financial interest in the performance of the firm that licenses their research, they are more likely to assist the firm in product development.