Does graduate human capital production increase local economic development? An instrumental variable approach

Using a survey on Italian graduates, we investigate whether universities' degree production affects the economic development of the regions where academic institutions are located. To deal with suspected endogeneity between human capital development and economic growth, we employ an instrumental variable approach, using a global lump sum transferred to each university as an instrument for human capital production. Once we control for the regional flow of mobile students and graduates, the findings reveal the beneficial effect of the university system on local economic development through the gain in human capital.