A Short Look at Econometrics

This is a subject that economic developers should have at least a basic understanding of. Analytical reasoning is important to our business. We under-use these abilities in our work at the current time.

Econometric techniques are usually developed and employed for answering practical questions. As the first five letters of the word “econometrics” indicate, these questions tend to deal with economic issues, although applications to other disciplines are widespread.

The economic issues can concern macroeconomics, international economics, and microeconomics, regional and industrial economics, but also finance, marketing, and accounting. The questions usually aim at a better understanding of an actually observed phenomenon and sometimes also at providing forecasts for future situations. Often it is hoped that these insights can be used to modify current policies or to put forward new strategies.

For example, one may wonder about the causes of economic crises, and if these are identified, one can think of trying to reduce the effects of crises in the future. Or, it may be interesting to know what motivates people to donate to charity, and use this in order to better address prospective donors. An economic developer mght want to understand the investment behavior of certain industries in relation to geography. One can also try to understand how stock markets go up–and, particularly, how they go down–in order to adjust investment decisions.

The whole range of econometric methods is usually simply called “econometrics.” And anyone who either invents new econometric techniques, or applies old or new techniques, is called an “econometrician. ” That shouldn't surprise you, right?

One might also think of an econometrician as being a statistician who investigates the properties particular to economic data. Last I looked, economic developers are not even expected to know anything about statistics to become certified.

Econometrics can be divided into econometric theory and applied econometrics. Econometric theory usually involves the development of new methods and the study of their properties. Applied econometrics concerns the development and application of tools to solve relevant practical questions. This second area will be most useful to economic development in a local and state economies sense.

In order to answer practical questions, econometric techniques are applied to actually observed data. These data can concern: (1) observations over time, like a country's GDP when measured annually, (2) observations across individuals, like donations to charity, or (3) observations over time and over individuals. Perhaps “individuals” would be better phrased as “individual cases, ” to indicate that these observations can also concern countries, firms, or households, to mention just a few. Additionally, when one thinks about observations over time, these can concern seconds, days, or years.

Want to learn more? Read this fine book: A Concise Introduction to Econometrics: An Intuitive Guide. Contributors: Philip Hans Franses - author. Publisher: Cambridge University Press. Place of Publication: Cambridge, England. Publication Year: 2002.