The relationship between new universities and new firms: evidence from a quasi-natural experiment in Spain

Abstract

We examine whether establishing a new university (or faculty) in a region affects new firm creation within that given region. We identified a quasi-experimental design based on Spain’s 1983 University Reform Act, which opened the door to founding new universities at the regional level. We use a generalized difference-in-difference model to estimate this relationship. The results indicate that establishing a new university has a significant positive effect on new firm creation. We then introduce an analysis by the field of knowledge of the created university/faculty and the creation of firms in different categories of sectors defined according to their research and development intensity. In this case, the results show that creating a new university/faculty has a significant positive effect on firm formation in medium-high- and medium-low-technology manufacturing as well as in knowledge-intensive market and financial services. Moreover, creating a health faculty has a significant positive effect on new firm formation in the high-tech manufacturing sector. Finally, the results indicate ambiguous results from different sources of agglomeration economies.