Higher Education, Localization and Innovation: Evidence from a Natural Experiment

During the past fifteen years, government policy has decentralized post-secondary education in Sweden. We investigate the economic effects of this decentralization policy on the level of innovation and its spatial distribution in the Swedish economy. We rely upon micro data on patent activity over time, which records the home address of each patent awardee during the past eight years. These measures of innovation, together with data documenting the decentralization of university-based researchers and students, permit us to estimate the effects of exogenous changes in educational policy upon the extent and locus of innovative activity. We find important and significant effects of this policy upon the locus of knowledge production, suggesting that the decentralization has affected regional development through local innovation and increased creativity. We also find some evidence that this policy has affected the aggregate output of “knowledge industries.”