"Policy Scepticism" and the Impact of Welsh Higher Education Institutions (HEIs) on their Host Region: Accounting for Regional Budget Constraints

This paper replicates the analysis of Scottish HEIs in Hermannsson et al (2010b) for the case of Wales in order to provide a self-contained analysis that is readily accessible by those whose primary concern is with the regional impacts of Welsh HEIs. A "policy scepticism" has emerged that challenges the results of conventional regional HEI impact analyses. This denial of the importance of the expenditure impacts of HEIs appears to be based on a belief in either a binding regional resource constraint or a regional public sector budget constraint. In this paper we provide a systematic critique of this policy scepticism. However, while rejecting the extreme form of policy scepticism, we argue that it is crucial to recognise the importance of the publicsector expenditure constraints that are binding under devolution. We show how conventional impact analyses can be augmented to accommodate regional public sector budget constraints. While our results suggest that conventional impact studies overestimate the expenditure impacts of HEIs, they also demonstrate that the policy scepticism that treats these expenditure effects as irrelevant neglects some key aspects of HEIs, in particular their export intensity.