Theory, General Equilibrium and Political Economy in Development Economics
Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)
January 30, 2010
MIT Department of Economics Working Paper No. 10-06
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.
Number of Pages in PDF File: 26
Keywords: economic development, economic theory, methodology of economics, political
JEL Classification: O10, O12, B41, D50, P48
Date posted: April 22, 2010
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