The Lyceum is a posh restaurant in the heart of Liverpool. Under a classically domed ceiling, thick-walleted patrons sit at candle-lit tables, sip coffee on gentleman's club-style leather sofas, and listen to music played on an antique Broadwood baby grand. Only the name, taken from the more famous Athenian school founded by Aristotle, and a framed yellowing page recounting its foundation in 1796, reveal that it was once a library.

But reference books long ago disappeared from the Lyceum and, until earlier this year, the mock-classical building had been disused and dilapidated. That it has made the transition from reading room to restaurant is, ironically, a tribute to the impact of the local universities on the regeneration of Liverpool.

Liverpool, of course, is the self-proclaimed "City of Learning". Students comprise one tenth of the local population. The universities attract millions from industry through research contracts, endowments and contributions to construction work.

But there are other ways that the universities influence the area which are less amenable to statistical analysis. Mike Gutmann, the owner of the Lyceum, says that he came to Liverpool, and invested in the refurbishment of the Lyceum, because one of his relations had studied at John Moores University: "My nephew said Liverpool was the place to establish a restaurant."

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The influence of the two universities, as well as the City of Liverpool Community College and Paul McCartney's soon-to-be-opened Institute of Performing Arts, is sure to increase with the appointment of Liverpool University's vice chancellor, Philip Love, to the chairmanship of the Mersey Partnership. Liverpool's previous vice chancellor, Graeme Davies, was an earlier chairman of the partnership, but that was in the days when it was little more than a local talking shop.

Since 1993 the Mersey Partnership, a grouping of the city's power brokers, has had a more real role.

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According to Christopher Gibaud, the partnership's chief executive, Professor Love's appointment recognises the growing influence of education in urban regeneration: "The universities have resources we want to access, skills we want to use, and global networks we want to key into. They are real magnets for industry. They are significant economic catalysts."

Research expertise is one area that Professor Love intends to make more available to the community. He acknowledges the arguments of academics like Alistair Breckenridge, head of Liverpool's top-rated pharmacology department, who dubs contract research "mickey mouse", but he says that a balance must be struck between exotic blue skies research and humdrum contract work which benefits industry.

Another area Professor Love will highlight is the universities' potential contribution to Liverpool's architectural heritage. The city is well endowed in this respect, claiming more Georgian buildings than Bath. Many have been spruced up, and several run-down districts have been reclaimed by housing students in refurbished accommodation. But more needs to be done. Professor Love's grand university lodge shares the same postal district as Toxteth where riots erupted in the early 1980s. Even now, Toxteth remains a no-go area at night. Banks offer a drive-by cash till service.

Professor Love's twin objectives coalesce in Liverpool University's project to transform the Liverpool Royal Infirmary into a centre for university-business collaboration.

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Designed by the Victorian architect Arthur Waterhouse, whose main university building gave its name to the term "redbrick university", the LRI stands on the edge of Liverpool University's 90-acre estate. It was last used in 1978, and the plans will transform it into a "people transfer centre" where academics and business people can meet. The project has won Pounds 3.5 million of European funding, and Professor Love is in no doubt about the significance of the upgraded hospital. "It will become the university's gateway."