Source: Universities UK (2011) Driving Economic Growth, London: Universities UK, 1 December; also see Chester, J., and Luzajic, J. (2011) ‘Time to recognise that universities have a central role in UK growth strategy,’ The Guardian, 1 December.
Editors’ note: our sincere thanks to Jason Baumgartner (Indiana University Bloomington), Julie Chambers (Institute of International Education) and Robert Gutierrez (Institute of International Education) for permitting us to post their NAFSA 2010 slideshow here. As our regular readers know, GlobalHigherEd has run a series of entries on this theme including:
- Is a UK funding crisis an effective mechanism to spur on the ‘education as a global growth industry’ development agenda? (15 January 2010)
- Taking note of export earnings (25 November 2009)
- Measuring the economic value of Canada’s international education “industry” (29 October 2009)
- Economic benefits of international education to the United States (13 May 2009)
- Making sense of the economic contribution of international students in Australia (up to 2008) (4 April 2009)
- Measuring the economic impact of ‘export education’: insights from New Zealand (7 February 2009)
Further entries will be developed this summer, especially now that we have just finished over a month of work-related travel (hence the recent slow-down in entries on this site).
Kris Olds & Susan Robertson
Amidst a discursive struggle this week over the state of finances for higher education and research in the UK, which reached a crescendo two days ago (e.g., see ‘Universities face meltdown – and all of Britain will suffer‘; ‘Higher education will be ‘on its knees’ after cuts‘), I could not help but note what Prime Minister Gordon Brown had to say in a speech (‘Education as a global growth industry‘) on 14 January:
Today, I also set out our commitment that, working in partnership with you, and our schools, colleges and universities, we will support a major expansion of their activities across the world. Central to this is a new ambition, which I am setting today for Britain, that we double the value of our higher-education exports.
We will do this in four ways. We will welcome students here to Britain on the basis of merit and ability – of course with all the proper checks in place. We are determined to stamp out abuse of student visas and I announced last year we will shortly bring forth proposals on this. I emphasise that all students that come here legitimately, to benefit from our UK education system, will be made welcome, because we are not prepared to put legitimate language courses, and schools and colleges out of business or set back our efforts to expand our educational trade.
Secondly, we want to reinforce and build on the international standing of our qualifications, by offering examinations and qualifications that are rightly highly regarded around the world.
Thirdly, we will work to develop partnerships between UK institutions and universities in many different countries around the globe. Already over the last four years, we have promoted thousands of new partnerships across all sectors, from schools linking to post graduate research through our initiatives for international education. In a global knowledge economy, we know we will thrive, not just by developing our own knowledge, but by taking knowledge and sharing it with the billions of people who understand that education is the key to survival and success.
Fourthly, we will use distance learning to build on the work of our excellent universities that are already making use of great and rapid advances in the relevant technology. As I said, in our higher-education strategy, we welcome and support the work of the group chaired by Lynne Brindley. This task force is looking at how we can expand and develop the use of IT and online learning, not only in the UK, but across the world. Across higher education, we will want to ensure that we maintain and enhance world-class standards in everything we do in our international activities.
This is not about chasing money; it’s about leveraging our higher education system to offer the highest-quality opportunities across the world.[my emphasis]
This argument was matched, on the same day, by Peter Mandelson (the UK’s Universities Secretary) who suggested in The Guardian (‘Our universities are not under threat. Their income is at record levels‘) that:
The Russell Group can take much credit for the world-class standard of British higher education today. But the government inherited a badly underfunded university sector in 1997, which a former Conservative education minister described as “poorer pay, degraded facilities, less money to support the teaching of each student”. This government’s agenda for universities has included more state funding than ever before – an increase of over 25% since 1997. It is against this backdrop that British universities have developed into some of the very best in the world and are a critical part of our knowledge economy.
But this wasn’t simply on the back of state funding. In fact, while government spends £12.3bn on higher education today, total university income from all sources was over £23bn in 2007-2008. Government incentives have pushed universities to seek new forms of income from donations, international students and commercial engagement with industry. These are consistently rising. The decision to introduce tuition fees in England has also provided a new source of income. [my emphasis]
Mandelson carries on to note:
It is for universities themselves to identify where savings should be found, and they are as free as ever to focus on their research excellence and institutional strengths. The search for greater efficiencies should include more part-time courses and a greater range of one- or two-year degrees.
As I discussed earlier in GlobalHigherEd (‘Learning from London‘) the export earnings logic is already putting pressure on some UK higher education institutions, such that they are being driven the create new postgraduate [graduate degree] programs that have hundreds of Masters students supported by a small coterie of faculty. And I subsequently heard, in response to my ‘Learning from London‘ entry, that some London-based Masters programs have faculty sign contracts with students denoting exactly how many hours of “contact time” students can expect (it was a shockingly small number of hours per degree…something like 5 hours for the entire MA, assuming they follow through with the promised hours).
Now, as we also noted in ‘Taking note of export earnings‘, this global growth industry agenda is underlain by an ideological shift:
We would argue that these numbers are being constituted, and debated about, in the context of an ideological transition – one that increasingly enables views to emerge of higher education as a driver of economic versus cultural-political change. For example, a decade or two ago, it would have been impossible to imagine creating tables such as the one profiled in Kate Geddie’s entry in GlobalHigherEd in which education is measured against ‘scrap plastics’ or ‘chemical woodpulp’. Thus, a new organising logic, to use Saskia Sassen’s phrase, is emerging: one that reframes higher education as an urban/national/global services industry, for good and for bad.
Assuming we are right (of course we might not be!), it is interesting to think about how effective a state-enabled fiscal crisis for higher education institutions (in the range of a 12.5% cut so far, then 6.3% in succeeding years over three years “taking the total to about 30%”) will be in propelling this export agenda along. To be sure there is a broader fiscal crisis in UK public finances, but can it really be ameliorated on the backs of UK universities (and students, local and foreign)? All savings via higher ed cutbacks are significant, but in the big picture they are not that significant for the overall UK budget. But the transformation of the values shaping higher education policy, including enhanced state control versus greater autonomy for HEIs, is much more significant, more noteworthy, and certainly worth deliberating about. And the function of the crisis – a “politically mediated moment of decisive intervention and structural transformation” to use Colin Hay’s words* – is also worth unpacking.
In the end, is a UK funding crisis an effective mechanism to spur on a quality-oriented ‘education as a global growth industry’ development agenda? Will it provide a defacto or by design opening for private sector providers into the UK ‘market’, as it is doing now in the US (e.g., see Changing Higher Education‘s ‘For-profit higher education moves to fill gaps left by state budget shortfalls‘)? And who gains and who loses in the process? For example, can those 16-17 faculty and 13 teaching fellows (3 with PhD) I profiled in ‘Learning from London‘ take on even more that the “almost 400” masters students they already have to cope with, support, mentor, and educate? Something has to give, doesn’t it?
* Hay, Colin (1999) ‘Crisis and the structural transformation of the state: interrogating the process of change’, British Journal of Politics and International Relations, 1(3): 317-344.
Ahh – the end of the workday and time for a glass of wine: a fine New Zealand Sauvignon Blanc, perhaps?
The first time we heard that education generates more ‘export earnings’ for the New Zealand economy than does wine, we were both knocked off of our seats, and not because we had too many glasses! We were surprised because New Zealand’s white wine industry is world-famous – indeed almost as famous as Australia’s tourism industry. But wait: here too, it is now clear that education exports (ie, the provision of education across a border, either physically or virtually) generate more revenue for the Australian economy than does tourism, and is pegged third after exports of coal and iron ore.
Recent data released by the governments of Canada, the UK and Australia all point to similarly striking figures. In Canada last month, for example, the Department of Foreign Affairs and International Trade noted that international students generated 83,000 jobs, C$291m (£166m) in government revenue, and contributed C$6.5bn (£3.7bn) to the Canadian economy. The last figure is higher than Canada’s earnings for coniferous lumber ($5bn/£2.8) and coal ($6bn/£3.4bn).
In 2007, the British Council estimated the value of education and training exports to the UK economy at nearly £28bn, which is more than the automotive or financial services industries. And just a few days ago, NAFSA, the US-based Association of International Educators, noted that international students and their dependants contributed approximately $17.6bn (£10.5bn) to the US economy in the 2008-09 academic year.
It is increasingly common to hear about such numbers, and more often than not even experts within the higher education sphere are surprised by the significance of the impact of providing international students with an education. Given this, we would like to flag three key issues to think about when faced with these admittedly staggering numbers.
First, it is important to think about why these numbers are being sought at this point in history. We would argue that these numbers are being constituted, and debated about, in the context of an ideological transition – one that increasingly enables views to emerge of higher education as a driver of economic versus cultural-political change. For example, a decade or two ago, it would have been impossible to imagine creating tables such as the one profiled in Kate Geddie’s entry in GlobalHigherEd in which education is measured against ‘scrap plastics’ or ‘chemical woodpulp’. Thus, a new organising logic, to use Saskia Sassen’s phrase, is emerging: one that reframes higher education as an urban/national/global services industry, for good and for bad.
Second, it is worth thinking about the emerging capabilities to generate such analyses. Interestingly, almost all of the analyses have been generated by consultants working on behalf of ministries of education, or ministries of foreign affairs and trade. It is noteworthy that there is little capacity within the state to assess such impacts, so representatives of the state reply upon consultants with track records of studying an array of economic development impacts. Most noteworthy, though, is the increased involvement of ministries, other than education, in the sponsoring of such analyses. Thus, the reframing of education as a service industry is dependent upon a reconfiguration of the responsibilities of ministries for the education sphere, such that ministries of trade, as well as immigration and sometimes foreign affairs, are coming into the picture. This emerging trend has huge implications for the future of the governance of higher education.
Third, there is striking variation in the nature and quality of the analytical models adopted by ministries, and their consultants, in accounting for the economic impact of education exports. Despite our comment above about emerging capacity to assess such impacts, and of the role of more powerful ministries in this analytical exercise, the numbers are not yet comparable (nor, in some cases, trustworthy). For example, should all levels and forms of education be accounted for? Or, to what degree is national support (e.g., research assistantships, fellowships, associate instructors) for foreign students accounted for in the analytical models on offer? These are but two of dozens of questions that could be asked about the numbers that have emerged to date. International comparability is impossible at this point in time, and one has to wonder why this is the case if the sector is so seemingly significant in economic terms.
In closing, the globalisation of education, including higher education, is undeniably creating a diverse array of economic, social, cultural impacts. The export-earnings issue is starting to capture the attention of powerful stakeholders, public and private, for-profit and non-profit. Yet the quality of the analyses to date is patchy at best, and certainly not comparable internationally. Why might this be the case, and what could or should be done about it?
Kris Olds & Susan Robertson
Yesterday, Canada unveiled a report assessing the economic contributions that international students make to the country. Entitled Economic Impact of International Education in Canada, the report was presented by Stockwell Day, the Minister of International Trade and Minister for the Asia-Pacific Gateway, at a meeting of the Association of Universities and Colleges of Canada (AUCC).
Highlights from the report include the following:
- In 2008, international students to Canada contributed $6.5 billion (CAD) to the national economy, provided 83,000 jobs, and contributed $291 million (CAD) in government revenue
- This estimate is based on tuition fee payments, accommodation costs, and discretionary spending for international students from the K-12 to post-secondary levels
- While all provinces receive incoming students and report financial gain, Ontario and Quebec receive the lion’s share, with nearly two-thirds of all international students coming to Canada going to these two provinces
- Nearly 40% of all revenue comes from the top two source countries: China and South Korea
- The total value of international education is higher than the value of national exports in coniferous lumber ($5.1 billion) and coal ($6.07 billion)
Three other entries have recently been made on this blog on similar research conducted in different national contexts: Australia, New Zealand, and the United States. That Canada has joined these countries in the calculative process of determining the economic value of international education is significant for a few reasons.
First, while the state has multiple rationales underlying its promotion of international student mobility – ranging from international diplomatic and academic exchange ideals, to generating both short and long-term as well as direct and indirect economic benefits – the public discourse in Canada has hitherto tended to emphasize education as a (largely) publically-funded sector. In commissioning a report that emphasizes the economic contributions of international students, and the relative economic contribution of education services (e.g., see Table 15 from the report below), the Government of Canada seems to be showing a growing willingness to frame international education as an emerging export industry.
Second, education is a provincial responsibility in Canada, so policies and initiatives have tended to be decentralized. The Department of Foreign Affairs and International Trade’s (DFAIT) interest in developing a national agenda for international education has been manifest in the past few years, most clearly evidenced with the launch of the “Education in-au Canada” branding campaign last year. In commissioning a report that quantifies the overall export industry’s value, one can assume that this report serves in part to support the continued inclusion of education as a component of DFAIT’s Global Commerce Strategy. Moreover, the report prominently displays the financial contributions that international students make to provincial government revenues, a distinction that I have not seen made in other reports. One can further speculate that this inclusion is due to continued debates within and between various levels of government on the value of supporting the expansion of international education. (It should be noted that the report also says the provinces of British Columbia, Manitoba, and Nova Scotia had previously conducted similar research on their own.)
Lastly, it is worth reflecting on the fact that the report was commissioned by DFAIT but prepared by Roslyn Kunin & Associates, Inc., a private consultancy firm. As GlobalHigherEd has noted in previous entries on this topic (e.g., on New Zealand), other jurisdictions have adopted similar arrangements, but this still raises questions about private firms acting as knowledge brokers for the state, producing reports that can act both as analytical devices and lobbying tools. Given that each of the national reports reviewed on GlobalHigherEd are drawn from very different data sources and based on different modeling techniques, it also raises questions about the international comparability of such figures, and their potential role in benchmarking a country’s position vis-à-vis “competitor states” in the global international education market. For example, Canada’s report (that was produced from secondary data sources) cites annual contributions as $6.1 billion (CAD), whereas the US returns (as noted in a previous entry) are calculated to be $15.5 billion/yr (USD). Considering that some estimates put the United States as receiving 22.8% of all internationally mobile students, while Canada receives just 3%, there are clearly different data, assumptions, and perhaps intentions, underlining these reports.
Editor’s update: link here for the press release of the newest US report (‘International Students Contribute $17.6 Billion to U.S. Economy‘) which was released by NAFSA on 16 November 2009. The report was produced by Jason Baumgartner who wrote a 13 May 2009 entry (‘Economic benefits of international education to the United States‘) in GlobalHigherEd.
Editor’s note: this guest entry was kindly prepared by Jason Baumgartner (pictured to the right) of Indiana University in the United States. Jason has worked for the Office of International Services at Indiana University since 1999. He is the lead software developer of the iOffice application suite, which is a comprehensive immigration case management solution to enable staff to proactively assist international students and scholars in maintaining their lawful stay without interruption. This software is utilized by international offices throughout the Indiana University system and is licensed to other universities throughout the country. He is a member of NAFSA. He developed the current algorithm and conducts the annual analysis (since 2000) for the NAFSA Economic Impact of International Students. He has a Master’s in Information Science from Indiana University.
As regular readers of GlobalHigherEd will notice, this is another in a series of entries (see ’Measuring the economic impact of ‘export education’: insights from New Zealand‘; Making sense of the economic contribution of international students in Australia (up to 2008)) that attempt to shed light on how countries calculate the economic impact (and ‘export earnings’) of foreign students. I encourage you to read Jason Baumgartner’s entry below for its own sake, but also to begin comparing how the US (and this is really as close to an official view as one could get in the complex US higher education landscape) frames this issue in comparison to other countries, including New Zealand and Australia.
As I’ve noted before, we welcome guest entries on this issue from people studying the issue in any country, be they government officials, academics, consultants, or graduate students. The issue of understanding the economic impact of foreign students is severely underdeveloped, with little reflection on how different analytical models (and associated assumptions) can generate very different findings. Our thanks to Jason Baumgartner for his help in moving thinking about this issue forward. Kris Olds
NAFSA’s annual economic impact statements estimates the amount of money international students bring to the United States to support their education and stay. For the 2007-2008 academic year it is estimated that international students contributed approximately $15.54 billion to the U.S. economy. The following graph outlines the growth of this economic impact over the last 30 years:
The economic impact is defined as the amount of money that international students collectively bring into the United States to pay for their education and to support themselves while they (and in some cases, their families) are here.
The methodology used to calculate the economic impact has been greatly refined over that last three decades with the current model in place since 2000. The current algorithm in use was developed by Jason Baumgartner and Lynn Schoch at Indiana University – Bloomington’s Office of International Services. The analysis of the dataset has been conducted each year since 2000 by Jason Baumgartner.
The goal of this economic impact formula is to use data already collected for other purposes to provide a reasonable estimate of the economic resources that international students import to the United States to support their education here each year. The following figure outlines the algorithm:
The data sets used for this analysis comes from the following two sources:
- The Institute of International Education annual Open Doors report, funded by the Department of State, provides numbers of foreign students at universities and colleges throughout the United States during the academic year. In many cases, this data provide separate totals for undergraduate, graduate, and non degree students.
- Peterson’s provides cost figures for tuition, living, and miscellaneous expenses at U.S. institutions for the academic year. In some prior years this information came from College Board.
The extensive data provided by these two sources (which collect it directly from surveys of the institutions involved) allow us to make our estimates sensitive to differences between institutions. However, there are still areas where our estimates and formulas could be improved. For example, we compute economic impact only for students reported in Open Doors. Universities that do not provide information to the Institute of International Education are not represented. Also, enrollment reports represent peak enrollment, and not necessarily enrollment levels throughout the year.
To estimate expenses we use tuition, fees, and living expenses estimates derived from Peterson’s data collected on surveys completed by institutions every year. We try to make our calculations sensitive not only to differing costs at institutions, but differing costs for ESL students, undergraduates, graduate students, and students on practical training as follows:
- Undergraduates and English Language Programs: The number of undergraduate students at an institution is specified by Open Doors data. Peterson’s data provide undergraduate tuition and fee amounts, on-campus room and board amounts, and miscellaneous expenses. These categories are sometimes broken down into averages for international, out-of-state, flat rate, and in-state, students. When multiple averages are available, we choose averages in the order given above.
- Graduate Students: The number of graduate students at an institution is specified by Open Doors data. Peterson’s data provide graduate tuition and fee amounts, on-campus room and board amounts, and miscellaneous expenses. If there are no differentiated graduate expenses provided by an institution in the Peterson’s data then the undergraduate expenses would be applied.
- Students on Practical Training: We assume these students earn enough in their U.S. jobs to pay living and educational expenses for the year, and so import no funds for their support. Therefore, net economic impact of students in practical training is zero.
Economic impact of an international student equals tuition and fees, plus room and board, plus miscellaneous figured at 50 percent of room and board, less U.S. support. We assume that spring enrollment figures are the same as the fall figures reported, that all students are enrolled full time for two semesters or three quarters a year, and that students live on campus for the full year. The miscellaneous expenses, enumerated in Peterson’s data, average about 40 percent of room and board expenses. We use a 50 percent figure as an approximation that includes all extra expenses except for travel.
The amount of U.S. support given to international students is calculated to subtract from the expenses in order to establish a greater sense of the export dollars flowing into the U.S. economy. For this analysis the Open Doors survey is used; which asks schools to report the percentage of their students who are self-funded, the percentage who have U.S. source income, etc. The U.S. support percentage includes funding from a U.S. college or university, the U.S. Government, a U.S. private sponsor or current employment. For this analysis the percentages are calculated based upon the institution’s Carnegie classification and the academic career of the student. For example, this process will differentiate the level of support between undergraduates and graduates at a particular research institution while it also differentiates between a baccalaureate classified institution from an associate’s classified institution.
This model represents the export dollars brought in to each institution, state, and the overall U.S. economy that can be tracked over time. This provides a good measure for comparisons to other export data, such as data published by the Department of Commerce. This estimate also takes into account any U.S. funding or employment the international students may be receiving in an effort to best represent these export dollars flowing into the U.S. economy. This provides for an algorithm that identifies and estimates for this large U.S. export, provides a political argument for support of international education at both the national and university level, provides a trend of this data going back many years, and is very sound to hold up to the political nature of critiques of this statistical analysis.
There is no multiplier effect calculated within this analysis which may provide an even greater representation of the end result of these export dollars in terms of the additional revenue generated by the flow of these dollars throughout the overall U.S. economy. Instead this model focuses on core export dollars as a result of international students studying within the United States.
For more information please refer to the NAFSA Data & Statistics.
Editor’s update: link here for the press release of the newest US report (‘International Students Contribute $17.6 Billion to U.S. Economy‘) which was released by NAFSA on 16 November 2009. The report was also produced by Jason Baumgartner.
The latest contribution to assessing the “economic contribution” of international students to Australia’s economy was released last week. The informative report, titled The Australian Education Sector and the Economic Contribution of International Students, was prepared by Access Economics on behalf of the Australian Council for Private Education and Training (ACPET).
The executive summary of the 35 page report notes, amongst other things, that:
- Education services ranks as the third largest export category earner for the year 2007-08, behind coal and iron ore.
- Each international student (including their friend and family visitors) contributes an average of $28,921 in value added to the Australian economy and generates 0.29 in full-time equivalent (FTE) workers. Overall, this sees international students, and the associated visitation from friends and family contribute $12.6 billion in value-added.
- The share of education-related travel services has increased from around one per cent of total services exports in the early 1970’s to 27 per cent in 2007-08.
- International student expenditure in Australia contributes to employment in the Australian economy. It is estimated to have generated just over 122,000 FTE positions in the Australian economy in 2007-08, with 33,482 of these being in the education sector. Total student related expenditure (spending by students and visiting friends and relatives) generates a total of 126,240 FTE positions.
I’ll paste in a sample of tables and graphs from the report below:
Please keep in mind, as noted in our 24 June 2008 entry ‘Analysing Australia’s global higher ed export industry‘, that higher (tertiary) education is one of several contributing ‘education’ activities to producing export earnings:
- Higher Education
- English Language Intensive Courses for Overseas Students (ELICOS)
- Vocational Education and Training (VET)
- Other Awards Sectors (e.g., “bridging courses and studies that do not lead to formal qualifications”)
The development of capacity to assess the economic impact of foreign students is part and parcel of the denationalization and commercialization process. Capacity to analyze and hence constitute this new services sector – a fast growing ‘industry’ in the views of many stakeholders – is strikingly variable. In my view Australia and New Zealand have gone the furthest down this path, and it is therefore worth understanding how the Australasians approach this issue from an analytical (economic impact assessment) perspective.
It is also important to understand which institutions are emerging as key knowledge brokers regarding the economic contribution of international students. As the New Zealand (see ‘Measuring the economic impact of ‘export education’: insights from New Zealand‘) and Australian cases suggest, private consulting firms made up of economists (some of whom used to work for federal/national governments) are key actors. There is, thus, a symbiotic relationship between the state and the private sector when it comes to analyzing the evolving nature of the services sector of the economy; one becoming increasingly associated with, in policy and analytical senses, education institutions and development agendas.
In addition, as in this case, we see an association of private sector providers contracting out to have this report developed. The ACPET is “the national industry association for independent providers of post-compulsory education and training, for Australian and international students”, including:
- Higher Education
- Vocational Education and Training
- English Language Courses
- Senior Secondary Studies
- Foundation Studies
The ACPET Mission is to:
Enhance quality, choice, innovation and diversity in Australian education and training for individual, national and global development. Work pro-actively and co-operatively with government, education and training providers, industry and community organisations, in order to ensure that vocational and higher education and training services provide choice and diversity, and well-targeted, appropriately delivered courses which are widely accessible and of high quality.
One proxy measure of ACPET’s make-up is its broad of directors, highlighting how non-university “post-compulsory education and training” actors are also becoming dependent upon foreign students in countries like Australia; a structural position that leads them to institutionalize and create an International Education Committee, which then coordinates the production of reports such as this via the expertise of Access Economics.
Given the dependency dynamic, reports such as these are both analytical devices, but also tools for lobbying. Reports such as The Australian Education Sector and the Economic Contribution of International Students are increasingly available for downloading in PDF format, which enables wide circulation via email. Traditional releases to media sources continue, as well: see, for example, ‘Learning boom amid the economic gloom‘ in The Australian.
As noted in the introduction to a recent guest entry (‘Measuring the economic impact of ‘export education’: insights from New Zealand‘), we are in the early stages of seeking a series of national viewpoints on how countries approach the export earnings issue. We would be happy to entertain proposals for guest entries on this issue, regardless of how well formed your own country’s capacity is to make sense of the data that is (and is not) available.
Update: nanopolitan (‘Coal, iron ore, and education‘) makes the noteworthy point that “adjusted for population, Australia (21.7 million) hosts five times as many students as the USA (306.2 million)”. It might be worth adding that, according The Australian (‘Indian students boost the export economy‘, 2 April 2009) “Indian students now make up almost 18 per cent of Australia’s total foreign student population, the second largest group after China, which represents 23.5 per cent of the total foreign student body”.
Update 2: thanks to Brett for the links (see Comments) to two new news stories re. ‘Australian immigration launches probe on 20 colleges teaching international students for supply of fake education and work certificates necessary for the obtainment of permanent residency’.
Editor’s note: this guest entry was kindly prepared by Dr. Adolf Stroomberge, Chief Economist, Infometrics. Dr. Stroomberge has a PhD in general equilibrium modelling and 25 years of experience in economic consulting, specialising in economic modelling, econometrics and public policy research in areas such as education, taxation, savings and retirement, energy and environment, trade and transport. He has been a member of the New Zealand Advisory Committee on Economic Statistics since 1996 and was an Expert Reviewer for the IPCC Working Group II Fourth Assessment Report released in 2007.
This is the first of a series of entries, we hope, regarding the ways in which the state, often via the contracting out process to firms like Infometrics, begins to calculate the economic impact of an emerging industry (in this case, ‘export education’). In our research we have noted substantial differences, across space, regarding the nature of the calculative process.
In countries like New Zealand, Australia, and the UK, the state has a relatively clear understanding of the economic impact of the export of education services (e.g., see ‘Graphic feed: Australia’s dependence (2007-2008) upon foreign students‘, ‘International education activity in Australia up 23 per cent from previous financial year‘, and ‘Value of educational exports to the UK economy‘). This said there are clearly debates underway about which analytical models to adopt, and about the impacts of this development approach. Other countries have made relatively little effort, or progress, in calculating such impacts. The reasons for this are many, ranging from lack of capacity, inadequate data, ideological unease with the idea of thinking about (and especially speaking about, in public at least) education as an ‘industry’, and limited inter-governmental engagement about this issue within some countries.
At the multilateral scale, this entry should be read in association with debates about the trade in education services (e.g., see the series of UNESCO/OECD forums on trade in educational services), as well as GATS (see ‘GATS BASICS: key rules and concepts‘). And from a broader perspective, it is worth thinking about the power of numbers, and the role of the calculative process in assessing, and at the same time constituting, what is undoubtedly an emerging global services industry.
Our thanks to Informetrics (especially Adolf Stroomberge) for outlining how the analytical process works in New Zealand, and to the New Zealand Mission to the European Union for insights on this topic. Readers interested in this topic are advised to see this 2008 report (‘The Economic Impact of Export Education‘) by Infometrics, NRB and Skinnerstrategic which was prepared for Education New Zealand & the New Zealand Ministry of Education. An earlier (2006) version of this report is available here.
It had been suspected for some time that the contribution of the export education industry to the New Zealand economy has seen impressive, if volatile growth, to reach around $2 billion in 2007/08. Our research in 2008 sought to establish the truth of these suspicions.
Export education is a term used to describe the foreign exchange earned from delivering education to foreign fee-paying students. In general the goods and services bought by foreign fee-paying students are consumed within the destination country – analogous to the situation with foreign tourists. In addition though, some delivery of educational services takes place in students’ own countries, such as by distance education or through educational institutions establishing a presence in foreign countries. For New Zealand, however, over 95% of the earnings of export education are earned in New Zealand.
There are two main areas of expenditure by foreign fee-paying students; tuition fees and living costs.
For New Zealand data on tuition fees is collected by the Ministry of Education from educational institutions, along with data on the number of foreign students and the courses taken. Thus estimating total tuition income from foreign fee-paying students is relatively straightforward. It was not always so.
In contrast, there is no official data on student spending on living costs. Our 2008 study (‘The Economic Impact of Export Education‘) was the first study in New Zealand that incorporated a dedicated and purposely designed survey of expenditure by foreign fee-paying students.
Collecting data on student spending might seem simple, but there are a number of obstacles to obtaining accurate data including:
- Poor English on the part of respondents.
- Memory recall errors.
- Measurement of irregular expenditure as the survey takes place over a limited time period.
- Under-sampling of short-stay students.
- Allowing for earnings from employment whilst in New Zealand (which do not constitute foreign exchange income).
Summing up expenditure on tuition fees and living costs gives the direct impact on the country’s gross domestic product. However, the net impact will be less than this as some of the foreign exchange earned by export education leaks out of the country as payment for imports of goods and services. Some imports such as petrol may be consumed directly by foreign students, while other imports are consumed indirectly. An example is clothing made from imported fabric.
Economic impact multipliers are used to estimate the direct and indirect consumption of imports of goods and services. Each dollar spent on the output of one industry leads to output increases in other industries, or to an increase in imports. For example for a university to deliver education services to a foreign student it requires inputs of books, energy, communication services and so on. Part of the tuition fee is used to cover the cost of these items. Another part covers the cost of the buildings and equipment (spread over their useful lives) and there is a large portion for staff wages and salaries.
The supplying industries such as energy require inputs themselves, pay wages and salaries, and so on. The effect on these supplying industries is known as the upstream or indirect production effect and is commonly measured by a number called a Type I multiplier. In essence the indirect upstream effects is just a representation of the process whereby the expenditure and income sides of the national accounts equilibrate. No additional value-added is created from this effect.
The supplying industries pay wages and salaries which are used to purchase household consumption goods, some of which are imported. This generates flow-on effects in an analogous manner to the original increase in export earnings and therefore generates an additional gain in gross domestic product. The effect is generally known as the downstream or induced consumption effect. Again the effect may be measured by a multiplier known as a Type II multiplier.
Multipliers are typically calculated for different measures of economic activity such as gross output, value-added and employment, but gross output multipliers lead to double counting. For example the value of food and drink supplied at a restaurant is counted as part of the gross output of both the Food and Beverage Manufacturing industry and the Restaurant industry. If one’s aim is to measure overall business activity this double counting may be useful, but from the perspective of economic contribution it is value-added or gross domestic product that is of interest.
While very useful, economic multipliers have limitations. For example they do not include the effects of increases in government consumption made possible by higher tax revenue, or the effects of changes in investment that may be required to expand output. It is also implicitly assumed that all factors of production are in excess supply and that that there are no price changes (such as if a factor is in limited supply) which may lead producers to change inputs, thereby altering their production structure and hence the associated economic multipliers.
All of these limitations have the potential to undermine the result of multiplier analysis – the wider the attempted coverage of indirect and induced effects, the greater is the potential for miscalculation and error. Rather like a stone thrown into a pond; the more the ripples spread out, the more likely they are to encounter some form of obstacle – ripples from another stone, a cross current, the embankment.
A superior, but more costly approach is to use a multi-industry general equilibrium model. These types of models incorporate all of the key inter-dependencies in the economy, such as flows of goods from one industry to another, plus the passing on of higher wage costs in one industry into prices and thence the costs of other industries.
Our estimates show that in 2008 the economic impact of New Zealand’s export education industry was $2.1 billion, implying a four-fold increase since 1999. Few industries would be able to claim an average growth rate of 16% pa for almost a decade.
Tuesday is the Guardian’s weekly higher education day, and today’s paper leads with a profile of a new British Council and Education UK report that attempts to identify the “value of educational exports” (using trade in services parlance) to the UK economy.
The report can be downloaded here britishcouncil.pdf
The back page of the report highlights the scale of these exports (see bullet points below), while the Guardian notes that education exports are worth more to the economy than the automotive or financial services industries.
- The total value of education and training exports to the UK economy is nearly £28 billion
- The total direct value of education and training exports to the UK economy is over £12.5 billion
- The total value to the UK economy of international students in the HE sector (excluding TNE) is over £5.6 billion
- The total value of transnational HE to the UK economy is nearly £200 million
- The total value to the UK economy of international students in the HE sector (including TNE) is nearly £6 billion
- The total value to the UK economy of international students in the FE sector (excluding ELT) is over £1.2 billion
- The total value to the UK economy of international students in the ELT sector is over £1 billion
- The total value to the UK economy of international students in the independent schools sector is nearly £315 million The total value of international students to the UK economy is nearly £8.5 billion
As with the Canadian posting yesterday, the organizations producing this analysis have framed the issues at a range of scales such that they identify intra-national regional impacts within the UK, but also how the “competition” that is taking place is global in nature. In the end they recommend that the state needs to play a more strategic and proactive role in guiding the development process. This is how the Guardian story put it:
Martin Davidson, chief executive of the British Council, said education was vital to the UK both economically and culturally. “Fundamentally, this report shows the shift of axis of our education system from one that operates predominantly domestically to one that operates on a truly international basis.
“However, our position is vulnerable. Unless we start taking education much more seriously as a global business, we will lose out to other countries who understand the value of education to their economy much better than we do.”
He is, of course, alluding to the USA and Australia, but also to emerging ‘players’ like Singapore. Interestingly the report makes no reference to the role of the European Union (the UK, after all, is part of the EU), or the Bologna Process (see this recent posting on the issue), in shaping the development process.