Theory, General Equilibrium, and Political Economy in Development Economics
Open Access
- 1 August 2010
- journal article
- Published by American Economic Association in Journal of Economic Perspectives
- Vol. 24 (3), 17-32
- https://doi.org/10.1257/jep.24.3.17
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
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