Benefit Spillovers and Higher Education Financing: An ...

Benefit Spillovers and Higher Education Financing: An Empirical Analysis of Brain Drain and State-Level Investment in Public

Universities

Chinmay G. Pandit

Professor Thomas J. Nechyba, Faculty Advisor Professor Kent P. Kimbrough, Seminar Instructor

Duke University Durham, North Carolina

2018

Chinmay graduated with Distinction in Economics and a second major in Political Science in May 2018. He is the recipient of the 2018 Duke Financial Economics Leadership Award. Chinmay can be contacted at anytime via email at chinmayGpandit@. Presently, Chinmay works as an analyst at The Blackstone Group in New York City, NY.

Acknowledgements I would like to thank my thesis advisor and first ever Duke economics professor, Tom Nechyba. His valuable feedback, dedicated support, and deep interest in my learning have been great sources of inspiration throughout this project and throughout my Duke career. I would also like to thank my seminar instructor, Professor Kent Kimbrough, for his novel suggestions and regimented timelines that kept me on track during this yearlong process. Next, I would like to thank my family for always being curious in and encouraging of my work ? I would not be here without them. And finally, I want to thank the friends-for-life that I have made at this university, who have read countless drafts and been with me every step of the way. All errors are my own.

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Abstract This paper analyzes the impact of out-migration of college graduates on state higher education investment. A three-stage least squares regression model with state and year fixed effects is developed and estimated, addressing the relationship between state legislative appropriations, tuition, and educated out-migration across 49 U.S. states from 2006-2015. The results support the hypothesis that states respond negatively to benefit spillovers in higher education: for every one percent increase in the rate of educated out-migration, state appropriations decrease by 1.92 percent (roughly $140 per student). These findings suggest that an education subsidy provided to states may be necessary to prevent underinvestment in higher education.

JEL classification: H7, H75, I22, I28, R23 Keywords: Education Finance; State Expenditure; Regional Migration

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Table of Contents I. Introduction ..................................................................................................................................5 II. Literature Review .......................................................................................................................8

Interstate Migration ..........................................................................................................8 Benefit Spillovers ............................................................................................................11 III. Benefit Spillover Model ..........................................................................................................15 IV. Methodology ...........................................................................................................................18 Empirical Specification...................................................................................................18 Data ................................................................................................................................. 20 V. Results ......................................................................................................................................27 VI. Discussion ...............................................................................................................................30 VII. Conclusion .............................................................................................................................36 VIII. References ............................................................................................................................37 IX. Appendix A .............................................................................................................................40 X. Appendix B...............................................................................................................................46

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I. Introduction The New York Times recently published an article titled, "The States That College

Graduates Are Most Likely to Leave," in which the author notes that, "many of the most skilled workers -- young people with college degrees -- are leaving struggling regions of America for cities...in Southern and coastal states" (Bui, 2016). The article highlights a renewed focus within public and academic spheres on the growing education and migration divides within the United States, and suggests that there may be serious implications for individual states, depending on their gains and losses from educated migration.

Figure 1. Where Young College Graduates Tend to Move (2000-2015). Figure describes the migration patterns of college graduates from 2000 to 2015. Bui, Q. (2016, November 22). The states that college graduates are most likely to leave. New York Times. Retrieved from

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