"Big cities aren’t the only places to benefit from knowledge industries; college towns also thrive in the new economy," Smith writes. "Economists have found that cities where the U.S. government began setting aside land-grant money for public universities in the 19th century tend to be richer and more productive in the modern day. In a review of local economic policies, economists David Neumark and Helen Simpson cite several papers showing real positive effects of government efforts to create university-centered clusters."
Though government subsidies to college towns helps inject money into local economies, "economists Jaison Abel and Richard Deitz have found that the biggest impact probably comes from university research," Smith writes. "By attracting smart people to the region and drawing in private investment, research universities harness the forces of knowledge-industry clustering to increase the wealth of an entire region." Read more here.