APPLICATION OF ECONOMICS

• APPLIED ECONOMICS
• ECONOMETRICS
 APPLIED ECONOMICS
 It’s the application of economic theory and econometrics in specific settings.
 The use of the insights gained from economic theory and statistical analysis
from econometrics to make better decisions and solve real problems.
 Labour economics, business economics, industrial, organization, agricultural
economics, development economics, education economics, health,
economics, monetary economics, public economics, and economic history.
 Roger Backhouse and Jeff Biddle – It is a concept with multiple meanings
and this is neither positive nor normative economics but the art of
economics
 ORIGIN OF TERMS
 Applied Economics has a long history going back to the writing of Say
and Mill.
 Say wrote about “applying” the “general principles of political economy”
to “ascertain the rule of action of any combination of circumstances
presented.
 The full title of Mill’s (1848) work is Principles of Political Economy with
Some of Their Applications to Social Philosophy.
J.N. Keynes Discussion
 John Neville Keynes is the first to use the phrase “applied economics”.
 English Schools believed that political economy was a positive, abstract,
deductive science
 He desirably believe of the “English School’s” distinction between the
discovery of principles and their application to – not relying on a wide
knowledge of economic facts.
 Who proposed using the phrase “applied economics” instead of “the art of
political economy”.
 Other 19th and Early 20th Century Economists
Use of The Term
 Léon Walras, for example, organized his main work into volumes on “pure,”
“applied,” and “social” economics.
 Jaffé (1983) describes Walras’s plan as involving making a distinction
between that which is true, is useful, and is just.
 Vilfredo Pareto follows as similar usage suggesting economics might begin
by eliminating that which is inessential to examine problems.
-- pure economics containing only the principal lines
argument and applied economics involving supplying the details.
Joseph Schumpeter (1954, 23) referred to some applied fields in economics the repetition
of which might help highlight some of the issues involved in what defining applied economics
involves.
1. Those that are typically thought of as part of economics but which also looked at
individually to allow greater attention to detail – e.g. money and banking, trade, cycles, and
location
2. Those that are independent of economics but study of them is needed for economics. These
include subjects such as accounting, actuarial science, and insurance
3. Those that are areas of public policy: agriculture, labour, transportation, utility industries,
control of industry, and public finance
4. Comparative economic systems
5. Demography
6. Area studies
MORE MODERN VIEWS

MAINSTREAM VIEWS

 Refers to the orthodox or neo-classical tradition of

economics, in which markets are moved by an invisible
and all actors are rational.
 The origin of mainstream economics lie in the thinking of
ADAM SMITH – the father of modern economics.
Applied Economics and Economics as a Science
 Pesaran and Harcourt (2000) describe Stone’s attempt to face the challenge
of making economics into a science by combining theory and measurement
within a cohesive framework.
 They report Stone’s proposal for the establishment of the now famous
Department of Applied Economics at Cambridge.
Other Views

 Mitchell suggested that knowledge of “real markets,” would cause the

complexion and content of economic theory (Mitchell 1937, 26–28).
 Friedman shared this view that theoretical concepts might or rather should
arise out of the analysis of real world data.
 Mitchell and Friedman economics should involve an interaction between
examining data and formulating hypotheses.
 McCloskey critique what is being applied need not be “economic theory”, as
conventionally defined rather something more basic.
Eli Devons made a distinction between three different kinds of
“things”, any of which might be being applied:

 • theoretical models;
 • common sense axioms, and
 • theoretical concepts
 Critique
 Problems of applied economics: Macroeconomics
 Problems of applied economics: Development Economics
 Problems of applied economics: Economic Growth Theory
 Problems of applied economics: the Minimum-wage controversy
 A critique of the dominance of econometrics
THANK YOU & GOD BLESS