Economics

As an academic discipline, economics encompasses a wide variety of themes that represent its historical and contemporary intellectual development. Some of the discipline's major themes include economic methodology, development economics, Endogenous Growth theory, feminist economics, environmental economics, monetarist economics, and econometrics.

Economic methodology.

Economic methodology refers to the method of economic investigation. It mirrors and derives from economic theory and has come to be known as the formulation and testing of hypotheses of cause-and-effect relationship. Like the field itself, which is very much in dispute, economic methodology has evolved and transformed in time from a more formal scientific approach in which methodology was emphasized to a period of lesser emphasis on scientific methodology. Before the formalization of economic theory, economists employed discourse to state and test theories and hypotheses. This heuristic approach did not permit hypothesis to be tested in a manner acceptable as scientific.

In time, economics adopted the use of the scientific method to either formulate economic laws, theories, or principles or to ascertain their validity. The process involves observing facts, making assumptions and hypothesizing about facts, testing hypotheses (to compare outcomes with predictions), accepting or rejecting hypotheses, systematically arranging and interpreting facts to draw generalizations and establish laws, theories, or principles, and often formulating policies, addressing economic problems, or achieving specific economic goals.

At the two levels of microeconomics and macroeconomics, economic methodology can either be inductive or deductive, quantitative or qualitative, positive or normative. Economists express economic theory in terms of equations and relationships between economic variables in algebraic form and make inferences using mathematical operations. Over time, the economics discipline has witnessed an intensified mathematization of economic methodology and an increased role of abstraction and esoteric modeling that has, in effect, made it inaccessible to the untrained.

In this regard, econometrics, especially linear regression analysis, mathematical economics, game theory, and the like have played a great role. There has also been a move away from the scientific methodology involving data collection, hypothesis, analysis, and theory to an emphasis on modeling.

The 1960s and 1970s saw enormous advances in formal statistical testing and logical positivism and Popperian falsification, mostly in an attempt to establish one correct method of economics. Karl Raimund Popper (1902–1994) is one of the most influential philosophers of the twentieth century who produced influential works and political philosophy, particularly The Logic of Scientific Discovery (1959). Falsification is "a methodological standpoint that regards theories and hypotheses as scientific if and only if their prediction are at least in principle falsifiable, that is, if they forbid certain acts/states/events from occurring" (Blaug, 1992, p. xiii).

Development economics.

Development economics or the economics of development is the application of economic analysis to the understanding of the economies of developing countries in Africa, Asia, and Latin America. It is the subdiscipline of economics that deals with the study of the processes that create or prevent economic development or that result in the improvement of incomes, human welfare, and structural transformation from a predominantly agricultural to a more advanced industrial economy. The subfield of development economics was born in the 1940s and 1950s but only became firmly entrenched following the awarding of the Nobel Prize to W. Arthur Lewis and Theodore W. Schultz in 1979. Lewis provided the impetus for and was a prime mover in creating the subdiscipline of development economics.

As a subfield concerned with "how standards of living in the population are determined and how they change over time" (Stern), and how policy can or should be used to influence these processes, development economics cannot be considered independently of the historical, political, environmental, and sociocultural dimensions of the human experience. Hence development economics is a study of the multidimensional process involving acceleration of economic growth, the reduction of inequality, the eradication of poverty, as well as major changes in economic and social structures, popular attitudes, and national institutions.

Development economics covers a variety of issues, ranging from peasant agriculture to international finance, and touches on virtually every branch in economics: micro and macro, labor, industrial organization, public finance, resource economics, money and banking, economic growth, international trade, etc., as well as branches in history, sociology, and political science. It deals with the economic, social, political, and institutional framework in which economic development takes place.

The study of economic development has been driven by theories of economic development, which have developed along the lines of the classical ideas, the Marxist idea, or a combination of both. Some approaches have focused on the internal causes of development or underdevelopment, while others have focused on external causes. Economic growth—increase in output and income—has been used as a substitute for development and, in some cases, has been treated as synonymous with development. Economic growth and economic development have been mostly studied by means of cross-country econometric analysis.

Development economics has an assortment of theories and models to inform its teaching and research—neoclassical, Marxist, demand-driven, balanced growth, unbalanced growth, stages of growth, structuralist, dependency, neoclassical, and endogenous—each trying to explain development from a separate intellectual and cultural setting, each considering certain variables and relationships more important than others. Kaushik Basu identifies three major surges in economic growth theory in this century: the Harrod Domar model and the responses it orchestrated, the neoclassical response to Harrod Domar led by Solow (1956), and the works of Lucas (1986) and Romer (1988) that gave rise to the theory of endogenous growth.

Endogenous growth theory.

Proponents of the endogenous growth theory focus on technological progress and innovation and believe that technological change is endogenous, not exogenous, as neoclassical economics claims. Originally developed by Frankel, and then Lucas and Romer, endogenous growth theory argues that in addition to the accumulation of capital, technical progress is not exogenous but is planned and produced through research and development efforts. It recognizes the role of private sector and free market enterprise as the engine of growth, but suggests an active role of public policy in promoting economic development. In sum, in endogenous growth economics, several factors come together to determine the level of output in a country: government policy, economic behavior, and technology, which are determined by the expenditure on research and development, the rate of accumulation of factors of production—land, labor, capital, entrepreneurship, and savings. One could summarize the entire focus as being to explain the existence of increasing returns to scale and divergent long-term growth patterns among countries.

Feminist economics.

Feminist economics is the branch of economics that advances a theory of economic equality of the sexes and deals with gender equality or the elimination of gender subordination. Feminist economics originated from the organized feminist activities and movement whose influence became more visible in the 1970s and 1990s on behalf of women's rights and interest. It continues to exert an increasing influence on the field of economics by questioning the existing paradigms, approaches, and assumptions.

Through journals and feminist publications, feminist economists criticize what they refer to as the social construction of economics as a discipline, in particular neoclassical orthodoxy. They highlight what they consider to be the androcentric (male-centered) nature of conventional economic thinking, question its wisdom, and reveal biases in conventional microeconomic models. Feminist economists question the nature and functioning of the markets and the classical market society, especially with regard to economic rationality and maximizing behavior. They also highlight the absence of power relations and unequal exchanges, gender, and race in mainstream economic analysis. They question the focus on choices in mainstream analysis and advocate focusing, instead, on provisioning, which, in their view, would account for such social issues as poverty and income inequality. Feminist economics also indicts the lack of emphasis on women's economic role and the noninclusion of domestic and other unpaid work in national income accounts and statistics.

Environmental economics.

Environmental economics is the branch of economics that deals with the application of economic tools and principles to the understanding and analysis of environmental issues and to solving environmental problems. Environmental economics draws from both microeconomics and macroeconomics, focusing on individual decisions that have environmental consequences and changes in institutions and policies to achieve desirable environmental goals.

A major preoccupation of environmental economics is the question of externalities or spillovers, especially negative externalities or spillover costs of human action. The cost of and responses to pollution, emissions, and other negative externalities as well as population, natural resources, energy, water, agriculture, forests, and wildlife are issues considered in environmental economics. Likewise, environmental economics deals with economic dimensions of problems of both regional and global pollutants, including acid rain, ozone depletion, and global warming.

Environmental economics involves the valuation of the environment and natural resources as well as the assessment of environmental damage, management, and regulation of environmental risk, and the markets for the environment. Environmental economics takes account of sustainable development and the impact on the environment of trade, transport, deforestation, water pollution, and climatic change. It also involves analysis of the costs and benefits of the environment.

Mathematics and economics.

Mathematical economics involves the use of formal and abstract analysis to develop hypotheses and analyze economic relationships. It refers to the application of mathematical techniques to the formulation of hypotheses and building economic models. The introduction of mathematics into economics by the Frenchman Antoine Augustin Cournot (1801–1877) in 1838 marked the beginning of a steady course that led to the emergence of mathematical economics. The antecedents of Léon Walras in 1874–1877 and Vilfredo Pareto in 1896–1897 were also essential in advancing mathematical economics. Henceforth, geometrical figures became conventional in economic literature and so did differential calculus and linear algebra. Game theory—the application of mathematics to the analysis of competitive situations and actions—has become a popular aspect of mathematical economics following the publication of The Theory of Games and Economic Behavior in 1944 by John von Neumann and Oskar Morgenstern.

Econometrics.

Econometrics is the application of mathematical and statistical techniques to the testing of hypotheses and quantifying of economic theories and the solution of economic problems. Econometrics combines mathematical economics as it is applied to model-building and the hypothesis-formulation and statistical analysis involving data collection, analysis, and hypothesis-testing. The emergence of econometrics has provided economists with a tool for analyzing macroeconomic models for forecasting, simulation, and economic policy.

As the most widely used tool for empirical analysis and for constructing theories, econometrics provides a method that allows the expression of economic theory using statistical data or using statistical data to estimate economic theory. Estimation methods range from Ordinary Least Squares to panel data and time series analysis.

New methodological approaches have been developed to address some of the weaknesses of the traditional methodology. For instance, there is more emphasis on rigorous diagnostic testing, including coefficient, residual, and stability tests as well as Unit Root and Johansen tests for cointegration and Granger Causality test. Cointegration analysis of time series to determine whether a group of nonstationary series are cointe-grated is an important development in empirical modeling. Improvements in multiple regression analysis often involving tests of correlation and causality as well as linear and nonlinear regression methods have proved to be important for the development of econometrics.