Public funding reform and university innovation: quasi-experimental evidence from Scotland's free tuition policy

This study examines the causal effects of public funding on university innovation by exploiting Scotland's 2008 transition to free tuition as a natural experiment. Using panel data from 7 Scottish and 59 English universities (2003-2021), the study employs difference-in-differences estimation to identify causal effects. The findings reveal three key causal effects: First, Scottish universities experienced a significant increase in granted patents (8.5%) relative to matched English counterparts. Second, this improvement operates through two complementary mechanisms: increased public research funding (explaining approximately two-thirds of the effect) and improved research productivity (explaining the remaining one-third). Third, research-intensive Scottish universities showed productivity improvements in converting funding to patents that were more than double those of non-research-intensive institutions.