Working Paper: NBER ID: w15944
Authors: Daron Acemoglu
Abstract: I discuss the role of economic theory in empirical work in development economics with special emphasis on general equilibrium and political economy considerations. I argue that economic theory plays (should play) a central role in formulating models, estimates of which can be used for counterfactual and policy analysis. I discuss why counterfactual analysis based on microdata that ignores general equilibrium and political economy issues may lead to misleading conclusions. I illustrate the main arguments using examples from recent work in development economics and political economy.
Keywords: Development Economics; General Equilibrium; Political Economy; Counterfactual Analysis
JEL Codes: B41; D50; O10; O12; P48
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| economic theory (D46) | reliable estimates (C13) |
| general equilibrium considerations (D50) | reliable estimates (C13) |
| ignoring general equilibrium effects (D59) | incorrect conclusions (Y50) |
| cost of schooling (I22) | schooling decisions (I21) |
| constraints like school enrollments (I21) | external validity of estimates (C13) |
| political economy factors (P19) | implications of economic policies (F68) |
| empirical evidence without political dynamics (D72) | misleading conclusions (G41) |