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Local university expansion and firm innovation: Evidence from skilled labor supply shocks and innovation efficiency

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  • Yang, Guang-Zhao
  • Si, Qinru
  • Liu, Liang

Abstract

This study examines whether expanding the local supply of highly educated labor raises firm innovation. Existing research links higher-education expansion to aggregate human capital and firm performance but provides limited city-level evidence on firm innovation. Exploiting staggered openings of undergraduate universities across Chinese prefecture-level cities during 2008–2022, and combining city data with listed-firm records, we implement a difference-in-differences design. We find that university openings increase local firms’ patent output and improve innovation efficiency, allowing firms to achieve higher innovative outcomes without additional R&D expenditure, while intensified labor market competition reduces labor costs and further supports R&D activity. By contrast, the creation of vocational colleges or elite universities has only modest effects on local firm innovation, consistent with vocational graduates mainly entering non-R&D jobs and with high mobility among graduates of prestigious universities. These results highlight the importance of local skilled-labor availability and graduate retention for strengthening regional innovation capacity.

Suggested Citation

  • Yang, Guang-Zhao & Si, Qinru & Liu, Liang, 2026. "Local university expansion and firm innovation: Evidence from skilled labor supply shocks and innovation efficiency," Economic Modelling, Elsevier, vol. 155(C).
    • Handle: RePEc:eee:ecmode:v:155:y:2026:i:c:s0264999325004419
    DOI: 10.1016/j.econmod.2025.107446
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    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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