Students' consumption expenditures in economic impact studies: assumptions revisited in an input-output approach for Scotland

This paper revisits the application of impact-study methods to the consumption expenditures of students. Whilst the academic literature on the subject is mature, it has traditionally applied simplifying assumptions concerning the exogeneity of expenditures, which tend to over- or underestimate the impact of local students, depending on the particular approach adopted. To resolve this issue, we invoke the principles of input-output analysis and specify a model where consumption expenditures can be partially endogenous and partially exogenous. The origin of the income used to fund consumption expenditures determines their exogeneity. This model is calibrated using the results from an income-expenditure survey. These general issues are relevant to any application of impact analysis where the initial injection is a consumption expenditure shock. The approach is demonstrated using Scottish data for 2013. Figures are produced, on a comparable basis, for the effects of the consumption expenditure of students from each of the Scottish higher education institutions (HEIs). We demonstrate that the biases introduced by employing the assumptions usually adopted in the literature are particularly distorting for HEIs that largely serve local students.