The role of higher education institutions in sustainable development: a DSGE analysis

Abstract

The higher education sector is recognized as one of the major players in advancing sustainability through its research, education, and societal engagement. In order to investigate the role of higher education in achieving sustainable development, this study proposes a Dynamic Stochastic General Equilibrium (DSGE) model embedding human capital accumulation, environmental variables, and households' environmental awareness (i.e., investments in environmental protection). This paper studies the dynamic behavior of education and its link to environmental awareness, considering different higher education institution productivity parameters and a technology shock. This paper offers three main results. First, enrollment in tertiary education and environmental awareness are procyclical: households are willing to reduce their leisure during positive economic phases, increasing time devoted to labor and education. Second, as documented in the literature, environmental concern is linked to the business cycle in this study. Concerns about climate change are affected by short-term economic conditions and environmental quality anomalies. Consequently, households become more sensitive to environmental issues during a positive technology shock. Third, this mechanism is reinforced when the higher academic institutions become more efficient in their education activity, amplifying the beneficial effects of a technology shock on output and investments in environmental protection.