Credit: George Danby

All across America, university towns are thriving. Their skilled workforces and research activities draw in business investment, while their medical facilities and high quality of life attract residents from smaller rural towns.

As a result, there are a lot of ideas for how public policy can help turn small and decaying rural towns into slightly bigger and more prosperous college towns. One way is simply to start new universities and put them there, and in fact I once suggested that the federal government create a system of elite universities, much like the one that exists in India. (The idea is slowly becoming more popular.)

I have now come to believe, however, that this idea has inherent limitations. First, because the system would be so new, the number of national universities would start out relatively small. Second, a new university typically takes several decades to establish its elite credentials: Stanford, founded in 1885, took at least half a century to join the top ranks of private schools; Stony Brook University, founded in 1957, is only just now advancing into the elite echelon of public institutions.

There are other suggestions along these lines. One popular idea is to give universities incentives to build branch campuses in rural or declining areas. A new branch of the University of Michigan or Harvard would have instant respect and recognition, helping it hire faculty and attract students. But this idea also has drawbacks.

As economists have shown, the main way universities help local economies is through research activity. (Undergraduates tend to move away after graduation, while research activity draws in smart workers and graduate students from around the country and the world.) Would Harvard or Michigan — or public officials in Cambridge and Ann Arbor — be willing to risk diluting the impact of the flagship campus by spending more money at branch campuses?

More fundamentally, there are very few populated regions left in the U.S. without a university. Granted, most of these schools aren’t very well known or prestigious, yet they often have a profoundly positive impact on the local economy. New branch campuses could end up diverting students (and tuition dollars) from these smaller universities.

There is a better way: Build up the research capabilities of the country’s existing smaller and less well-known colleges.

This can be done in two ways: with money and with land. More land would allow universities space to build new research facilities, or to create more cheap housing for faculty and students. Much like the land-grant acts of the 19th century, new federal legislation could focus on ways to expand lower-ranked existing universities in declining regions of the country.

Of course, open land is scarcer now than it was in the 19th century. So a more direct way to help these universities would be to increase federal research spending, which is too low. Studies suggest that the most efficient way to spend additional money is on lower-ranked institutions, which tend to produce more results per dollar:

Those research dollars would allow lower-ranked universities to create new labs, hire new researchers, and lure more private partnerships and investment. The goal should be to turn so-called R3 universities, with “moderate research activity,” into more serious research institutions. The goal is not, to be clear, to try to transform these regions into the latest “next Silicon Valley.” (That’s hard enough for even larger cities; in a very few lucky cases, universities have managed to help create new technology clusters in regions that were previously in decline — Columbus and Pittsburgh, for example.) In order to compete with the big cities, rural America needs fewer small factory towns of 5,000 people and more small university cities of 50,000.

One of America’s greatest strengths is its network of public and private universities. One of the country’s greatest challenges is how to revitalize its rural areas. By upgrading the assets it already has, the U.S. can make regional economies more relevant and competitive. If the next Congress is looking for an effective economic policy to address the declining fortunes of rural America, it should help smaller, less well-known colleges expand their research activity and maximize their economic impact.

Noah Smith is a Bloomberg Opinion columnist. He was an assistant professor of finance at Stony Brook University, and he blogs at Noahpinion.