The impacts of universities on the surrounding environment go far beyond their gates. Their contribution to the local economy—understood as both direct and indirect effects on employment and overall economic development—is visible to the naked eye. Classic examples include Oxford, England, or Cambridge, Massachusetts, which are unthinkable without Oxford and Harvard universities. In Lebanon, the neighborhoods of Hamra and Jbeil teem with students and faculty from some of the country’s most prominent universities.
As a university whose history and mission are directly linked to contributing to the development of its communities, the Lebanese American University (LAU) undertook an economic study to assess its own impact on the local economy. One of the first challenges to address this question quickly surfaced, given the scarcity of significant data and quantitative information to capture the typically complex relationships between investments/expenditures and national economic impact. Because of this data scarcity, the study used an input–output model that permits the use of gross domestic product (GDP) deflators to portray the economy of years following a year for which a complete national accounts data set is possible. Using commonly available administrative data, the model not only allows for the calculation of monetary multipliers, but also employment multipliers that play a major role in the educational sector.
The total economic impact of LAU on the Lebanese economy is greater than the total of the university’s direct spending on payroll, goods and services, construction, renovation, and capital expenditure. It is comprised of direct, indirect, and induced impacts. The indirect impacts are the jobs, salaries, and sales generated by the businesses’ spending that LAU directly purchases its goods and services from. Subsequently, the jobs, salaries, and other spending of the successive levels of recipient businesses evidence this indirect impact. Induced impact is also demonstrated by the jobs, salaries, and sales supported by employee household spending.
The indirect and induced effect—or alternatively, the multiplier effect—is measured by what is known as Leontieff’s input–output economic model, which uses a series of multipliers to provide estimates of the number of times each dollar of input, or direct spending, cycles through the economy with regard to indirect and induced output, or additional spending.
Using the IMPLAN model, the study analyzed 2015 data from the Beirut and Byblos campuses and demonstrated that LAU’s total economic impact accounted for the creation of 9,570 employment opportunities, $209 million in labor income, and $897 million in total economic output; the total economic impact of LAU on the Lebanese economy equated to 1.8 percent of Lebanon’s GDP for that year.
Aggregated within LAU’s total economic impact is the university’s out-of-country spending. Lebanon has long been a destination for higher education, attracting students from beyond its borders through its reputation for high-quality education provision. In 2015, approximately 11 percent of the LAU student population originated from outside of Lebanon. Their expenditures within Lebanon are included in this analysis, as they would potentially have attended other institutions outside the country.
Beyond the direct economic impact, the study touched lightly on the broader range of secondary economic impacts that highlight a university’s role in enhancing human capital, fostering technological innovation, and promoting business creation in Lebanon. Even without the secondary economic effects, the examination of the impact of one university, in this case LAU, reveals the importance universities bring to the local economy and serves to underscore their critical role in developing the human capital in our country.
This was an unprecedented study in Lebanon, and the lack of general economic data was the motivation for which it was conducted. A satisfactory and generalizable solution to the dilemma of lack of data, in the simultaneous context of a wide range of unanswered questions that would rely on such quantitative information, has yet to be discovered. This study suggests one way out of the dilemma: the application of models that allow for a combination of broad macroeconomic data from national accounts, which is generally available even in countries with poor data provision (and in Lebanon’s case can be accessed online), and microeconomic data, from institutions with data collection and statistical documentation standards, implementation of which is required by law from all private institutions of higher education in Lebanon. Internationally-oriented universities, multinational companies, and stock market listed companies, subject to the reporting requirements of the securities markets where they are listed (in Lebanon, the Beirut Stock Exchange and soon the new Electronic Trading Platform), serve as such institutions. The combination of these two available data sources in the context of severe data scarcity, with models that allow them to be combined, allow for unprecedented conclusions in much needed areas.