Revenue Diversification in Public Higher Education: Comparing the University and Polytechnic Sectors

• Published date: 01 May 2014
• Author: Pedro N. Teixeira,Margarida Fonseca Cardoso,Vera Rocha,Ricardo Biscaia
• DOI: http://doi.org/10.1111/puar.12215
• Date: 01 May 2014

Pedro N. Teixeira is associate professor

of economics at the University of Porto,

Portugal, and director of the Center for

Research in Higher Education Policies. His

main research interests are the economics

of education and the history of economics.

He has published several journal articles in

higher education and economics journals

and has edited several collected volumes.

E-mail: pedrotx@fep.up.pt

Vera Rocha is researcher at the

Center for Research in Higher Education

Policies and has been a doctoral student

in economics at the University of Porto

since 2010. Her main research interests

are related to higher education (funding,

competition, and diversif‌i cation), industrial

organization (entrepreneurship, f‌i rm, and

industry dynamics), and labor economics

(wage differentials, human capital, and

occupational choice).

E-mail: verarocha.phd@fep.up.pt

Ricardo Biscaia is researcher at the

Center for Research in Higher Education

Policies. His main research interests are

regional and urban economics, the econom-

ics of education, and industrial organization.

E-mail: ricardo_biscaia@hotmail.com

398 Public Administration Review • May | June 2014

Public Administration Review,

Vol. 74, Iss. 3, pp. 398–412. © 2014 by

The American Society for Public Administration.

DOI: 10.1111/puar.12215.

Margarida Fonseca Cardoso is

assistant professor in the Biomedical School

at the University of Porto, Portugal, and

in the Abel Salazar Biomedical Sciences

Institute in the areas of biostatistics and

epidemiology. Her research interests include

epidemiology, public health, and education.

She is coauthor of several publications in

the area of higher education as a result

of her collaboration with the Center for

Research in Higher Education Policies. She

also has publications in the biomedical area.

E-mail: mcard@icbas.up.pt

Pedro N. Teixeira

Vera Rocha

Ricardo Biscaia

Margarida Fonseca Cardoso

University of Porto, Portugal

Financial stringency has been an increasing concern

in the higher education sector, especially in the aftermath

of the f‌i nancial crisis. As a result, public higher educa-

tion institutions have been under increasing pressure

to diversify their funding sources through tuition fees

and other nonpublic revenues.  is article ref‌l ects on

the institutional impact of those changes by analyzing

a panel of 30 higher education institutions from the

Portuguese public university and polytechnic sectors

for the period between 2003 and 2009.  e authors

explore the relevance of institutional characteristics

such as enrollments in undergraduate and postgraduate

programs, the qualif‌i cations of academic staf‌f , and the

regional environment where institutions are located.

Results suggest that certain institutional characteristics

related to mission dif‌f erentiation and the path of devel-

opment of binary systems are important determinants

of higher education institutions’ ability to earn income

from tuition fees and other nonpublic sources.

The dominant issue in recent years in higher

education funding in Europe and elsewhere

has been f‌i nancial stringency (Johnstone

and Marcucci 2010).  e current f‌i nancial crisis has

exacerbated previous debates about the sustainability

of the welfare state and has undermined the tradi-

tional f‌i nancial reliance of European higher education

on public funding (Aghion et al. 2010; Barr 2004).

 e growing f‌i nancial requirements of areas such

as health care and social security have forced many

governments to rethink their f‌i nancial engagements

in other areas, so that higher education has become

one of the potential areas for cost containment (Barr

and Crawford 2005).  is has placed increasing pres-

sure on higher education institutions (HEIs) to f‌i nd

additional sources of revenue and to reduce their reli-

ance on public funding by diversifying their revenue

structure (Teixeira and Koryakina 2010; Ziderman

and Albrecht 1995).

Nonetheless, existing studies indicate that achieving

success in attracting alternative resources is neither

simple nor accessible to many institutions. A recent

European survey indicated that results often do

not live up to expectations and that these new

sources of funding are often highly concentrated

in a small number of institutions (see Estermann

and Pruvot 2011). As in other aspects of higher

education, it seems that a kind of “Matthew ef‌f ect”

(Merton 1973) comes into play, with the strongest

institutions being the most successful in attracting

additional nonpublic revenues. However, there is

very limited knowledge of the institutional charac-

teristics that may explain those apparent dif‌f erences

in diversifying funding structure.  us, the main

purpose of this article is to analyze how institutions

are responding to those pressures and what factors

may explain the ability of dif‌f erent types of public

HEIs to accumulate revenues from nongovern-

mental sources (tuition fees and other nonpublic

revenues).

We analyze Portuguese data for the period between

2003 and 2009 using panel data models to exam-

ine factors such as the distribution of enrollments

between undergraduate and postgraduate programs,

the qualif‌i cations of academic staf‌f , and the regional

environment where institutions are located.  e anal-

ysis pays particular attention to making a comparison

of university and vocational sectors and evaluating the

extent to which each type of institution has particular

advantages in terms of revenue diversif‌i cation.

In the following section, we present a brief review of

the contextual trends toward revenue diversif‌i cation

in European higher education. We also discuss the

organizational specif‌i cities of HEIs and the way these

may inf‌l uence their responses to those f‌i nancial pres-

sures. We then analyze recent trends in the Portuguese

higher education system toward greater cost shar-

ing and revenue diversif‌i cation. We then present the

empirical model and the data used in the article.  e

subsequent sections discuss the main results. We con-

clude with some ref‌l ections about possible implica-

tions of our results as well as some avenues for future

research.

Revenue Diversif‌i cation in Public Higher Education:

Comparing the University and Polytechnic Sectors