While universities play a pivotal role in fostering the growth and progress of their surrounding cities, the extent of this influence remains underexplored and warrants deeper empirical investigation. Through a comprehensive literature review, we identify three main mechanisms that describe the developmental impact: urban innovation, urban entrepreneurship, and economic growth. Using panel data from 239 Chinese cities spanning 2004 to 2016, we show that the positive externalities from universities are region-specific. The development of universities not only stimulates urban innovation and entrepreneurship but also promotes economic growth in urban areas, shaping the overall influence of cities. Additionally, the positive externalities generated by high-quality and large-scale universities on local development are significant.