University of Arkansas, Fayetteville


The paper examines the question "Does specialization in higher education result in improved economic outcomes for a state as measured by increased research and development (R&D) in the state?" A fixed effects model is employed to estimate how the variation in state funding per pupil across institutions of higher education (a measure of specialization) impacts R&D funding in the state. Expenditure per pupil data from the Integrated Postsecondary Education Data System (IPEDS) from 1992-2000 for the approximately 600 public, 4- year institutions in the U.S., is used to capture the variation in state funding in institutions of higher education. The results of this study indicate that an increase in the proportion of a state's funding appropriated to higher education leads to a statistically significant increase in R&D expenditures in that state. The policy implication of this finding is a greater proportional investment in higher education implies a significant return on investment. The study also indicates that an increase in the variation of state expenditures per pupil leads to a positive, but not statistically significant, increase in R&D expenditures in that state. The data suggest, albeit weakly, that specialization in higher education funding leads to improved economic outcomes for the state as measured by R&D expenditures. "There was that law of life, so cruel and so just, that one must grow or else pay more for remaining the same." - Norman Mailer, The Deer Park