Linking the Theory with the Data: That is the Core Problem of International Economics

Edward E. Leamer

Chapter 67 in Handbook of Econometrics, 2007, vol. 6A from Elsevier

Abstract: The greatest problem for empirical analysis is how best to allow the context to affect the inferences. Econometric theory presupposes contextual "restrictions" that can be taken as given or assigned a probability distribution. These contextual inputs are rarely available. I illustrate this point with a review of the empirical work in international economics which has focused not on properties of estimators but instead how best to link the theory with the data. I argue that the two errors we should worry about are not rejecting a true null or accepting a false null but rather taking the theory too seriously and not taking the theory seriously enough.

JEL-codes: C39 (search for similar items in EconPapers)
Date: 2007
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