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The economic impact of university research funding

The research conducted by universities makes an important contribution to the Scottish economy and society. Such research advances knowledge, develops new products and processes, and increases productivity and economic growth.

University research is also a strategic investment. Scotland has more than a population share of the UK’s researchers and is often cited as “punching above its weight” in terms of research impact and quality.

Universities are also cited as a key reason for foreign direct investment in Scotland, highlighting their contributions to the goals of the National Strategy for Economic Transformation (NSET).

The Scottish Funding Council (SFC) is one of the largest funders of Scottish university research, providing £286m in research and knowledge exchange funding during the 2019-20 academic year (27% of the total).

In this report, we evaluate the impact of research funding on Scotland’s economy. We emphasise that the estimates are the “narrowest” expression of economic impact, reflecting only the economic activity and jobs directly supported by investment in research. We estimate the economic contribution of:

  • SFC grants for research and knowledge exchange to universities;
  • All university research funding; and
  • All R&D spending.

We estimate that in 2019, SFC research and knowledge exchange funding supported:

  • Over 8,500 full-time equivalent jobs;
  • £570 million in output; and,
  • £400 million in gross value-added (GVA).

All R&D spending supported nearly 60,000 jobs, over £5,300 million in output, and £3,225 million in GVA.

We also compare multipliers for research spending to other sectors in the Scottish economy. We find that output, GVA, and employment multipliers for university research funding are typically higher than the average sector in Scotland, particularly when wage spending by employees is taken into account.

These input-output results are narrow estimates that account for the effects of spending on research, but they do not capture spillovers like productivity gains, innovation, and agglomeration, nor do they include wider societal benefits.

We review the literature and find an estimate of 20% return on investment (ROI) for public R&D in the UK. In other words, this figure suggests that for every £1 spent on public R&D, there are productivity spillovers worth an additional £0.20.

After benchmarking Scotland against other regions of the UK on metrics related to ROI for R&D, we posit that Scotland’s ROI to public R&D may be higher than the average for the UK.

There are also a number of social benefits to research that cannot be appropriately measured or monetised.

We conclude the report by discussing approaches to estimating the return on investment in research.

Although these approaches can provide an estimate of the value of R&D spillovers to productivity and knowledge beyond that provided by the input-output modelling, they will still likely not capture other benefits such as international reputation, policy influence, and other less tangible impacts. In these cases, case studies and consideration of the less tangible impacts are useful for understanding the impact of research in a given field.

Authors

Picture of Mairi Spowage, director of the Fraser of Allander Institute

Mairi is the Director of the Fraser of Allander Institute. Previously, she was the Deputy Chief Executive of the Scottish Fiscal Commission and the Head of National Accounts at the Scottish Government and has over a decade of experience working in different areas of statistics and analysis.

Hannah is a Fellow at the Fraser of Allander Institute. She specialises in applied social policy analysis with a focus on social security, poverty and inequality, labour supply, and immigration.

Brodie is a Knowledge Exchange Assistant at the Fraser of AllanderInstitute.She has recently completed an MSc in Applied Economics at the University of Strathclyde and has a first-class Honour’s degree in Economics and Politics from the University of Glasgow

Simeon Dzhonev

Simeon is an Economic Futures placement at FAI over summer 2023. He is currently an undergraduate student at the University of Stirling.

Kate is a Knowledge Exchange Assistant at the FAI working across a number of project areas. She is currently studying for her MSc in Economics at the University of Edinburgh and has a bachelor’s degree in Economics from the University of Strathclyde. Kate is also the Outreach Coordinator at the Women in Economics Initiative which aims to encourage equal opportunity and improve representation in the field.