chapter 20
Economic Research
The bulk of this book has discussed the basic toolkit of economics—the theory and tools that make up the body of economic knowledge. We now turn our attention to how such knowledge is created. In this chapter, we introduce the research process in economics. We begin with an overview of what is meant by research in economics and how this differs from what many people assume. Next, we outline a typical research process. Finally, we conclude with how economists share new knowledge.
CHAPTER OBJECTIVES
After completing this chapter, the student should be able to:
1. Describe what economic research is and what it is not.
2. Outline a typical research process in economics.
3. Understand how economists share information.
4. Describe the peer-review process of an academic economics journal.
Introduction to Research in Economics
Up to now, we have focused exclusively on what might be called pure content, that is, the facts and pronouncements of the discipline of economics. At this point, an attentive reader will know a fair amount about the basics of economics. Knowing, however, is quite different from doing. Research is the process of “doing” by creating, evaluating, and confirming knowledge.
The field of economics is somewhat different from other disciplines studied in college in that many of the other physical and social sciences give a great deal of attention to research at this level. The professional consensus in economics has long been that the degree of content knowledge and, more important, analytical skills that a typical undergraduate student possesses is inadequate to truly add to the body of knowledge in economics. However, there is growing recognition of the value of learning economics by doing economics. For this reason, many economics majors either have the option or are required to complete a research project or similar capstone experience.
Research is, in fact, what economists do that makes them economists. This might seem obvious, but if you think about the economists that you are most likely to be exposed to in the media or on the Internet, such as the chairman of the Federal Reserve or a guest columnist for a nationally renowned newspaper, they will rarely (if ever) talk about the work they do on a day-to-day basis. This chapter gives you some insight into how those people got to their positions of influence and authority—by creating knowledge and disseminating it to the greater economics community.
Before we move on, however, it is probably as useful for the reader to understand what economics research isn’t as to understand what it is. Common mis-perceptions about doing economics research usually fall into the following categories:
1. Summarizing previous research. Students will sometimes approach us and ask if they can do a “research paper” in order to earn extra credit. However, such students usually don’t actually mean that they want to engage in research; instead, they want to read up on some topic and summarize what they read. This is not economics research. In some fields, particularly in humanities subjects such as history or English, research is almost exclusively the review and synthesis of existing works. In economics, however, this is just one step in the research process (which we outline in the next section). Remember that research creates new knowledge. If research were simply the rehashing of what already exists, new knowledge would never be created.
2. Collecting data. First and foremost, economics research revolves around answering questions. The data that are used in the vast majority of today’s research are merely the bricks that are used to construct the ideas. Collecting data is akin to gathering up the bricks needed for a building, but not yet building anything.
Even if you aren’t required to do research as part of a degree plan or a course of self-study, you should still be familiar with how and why research is done. Doing research in economics is valuable and constructive for a number of reasons. First of all, it helps you summarize what is already known, and what is not, in a field. For instance, if you are interested in international trade, conducting a research project on a trade-related issue will more firmly cement the questions whose answers are known and help you understand what still is not known in that field. Second, research makes you an economist by contributing to the field, by solving a puzzle or problem, or perhaps just by testing existing knowledge in a new way. Finally, it allows you to weigh in on a debate in a meaningful way.
The Research Process
There is a temptation to think about the goal of research as being an end product such as a paper or an article. The correct way to approach research is to think about that product as a step toward the ultimate goal of building knowledge. For this reason, research is really a process rather than a product. In economics, the research process is a series of stages that the researcher will go through to create new knowledge. Moreover, it is important to keep in mind that the research process is iterative. You may have to go through some of the steps several times before you get to a product.
The basic pattern in economic research is that first an idea or argument is created that takes a particular stance. Evidence for that stance is then gathered, analyzed, and presented to the community. The community gives feedback on the argument and ways to improve the analysis, and frequently other scholars develop competing ideas or approaches. Over time, the most credible arguments that stand up to scrutiny survive and become part of the body of economic knowledge.
The first step is to develop a question. Research in economics, like other formal research, is based on the scientific method. This means that you must develop a testable hypothesis, meaning that you must come up with a question that is answerable. For instance, let’s suppose that you are interested in health economics and the role of insurance in the healthcare decisions that physicians make. This is not a research question because it is not a question. Narrowing down your ideas further might yield something that is testable, such as, “Do people with insurance have an easier time getting doctor’s appointments than people without insurance?” Usually, you will have an idea of what you expect to find as an answer to this question. This is your hypothesis. For instance, your research question would be to determine whether this statement is true or false: “People with insurance have an easier time getting doctor’s appointments than people without insurance.”
Research ideas typically fall into three broad categories:
• Proposing a new theory. This is research that develops a new way of explaining an observed phenomenon. For instance, when it was observed that in the short run, an increase in the money supply led to an increase in prices but not in output, the quantity theory of money was developed (a very simplified version of which appears in our chapter on money). Theoretical papers are usually very mathematically complicated, and are rarely seen at the undergraduate level.
• Testing an existing theory with data. This is empirical (meaning “to measure”) research that tests a theory numerically. For instance, if we were to test the theory that as wages increase, workers supply more labor, we could find data on wages and see if as wages increased, people indeed supplied more labor. If we got a different result, we would first want to make sure that something else wasn’t going on—the ceteris paribus assumption. If something else was going on, such as an increased marginal product of labor, we would need to find a way to account for that in our empirical test. If there wasn’t something else going on, we might suggest that our theory is incorrect or needs revision (such as revising the law of supply when it applies to labor to allow for backward-bending supply curves).
• Prediction. In this type of research, we might try to model what may happen in the future based on some change. For instance, if we were interested in economic growth, what might happen to our full-employment level of output if savings rates increased? We could also predict a future situation based on past trends or a policy change.
The second step is to determine what the existing literature says on the topic. This is a process known as a literature review. Your goal at this point is to review primary sources, such as peer-reviewed academic journals whose audience is professional or scholarly, for what is known about your question and what still remains unknown. Secondary sources, which include sources like news outlets (such as the magazine the Economist or the Wall Street Journal) that summarize primary sources, are a great starting point for ideas to form your original question, but your literature review should be made up of primary sources. Your goal with your literature review is to summarize the existing work, determine what has been done, and determine what questions remain or what inconsistencies may exist. During this process, you may find that your original question has already been answered, and students sometimes get discouraged by this. The good news is that your literature review helps point you toward a new question.
Still Struggling
Reading a professional, peer-reviewed journal can be daunting. There is likely to be a great deal of theory or a mathematical process that seems “over your head.” The key to understanding an article is to tackle it in a methodical and critical way. When students are struggling with an article, we suggest that they attack it this way:
1. Read it in the following order: abstract, introduction, conclusion, background, results. If the way the researcher got the results is of particular interest, then pay as much attention to the methodology as to the results.
2. Try to answer the following questions:
a. What is the author (or authors) trying to say? What is the fundamental question that he is trying to answer?
b. What answer did he come up with?
c. What did the author say in the article about what other people had written on the question or the general subject? Did this author’s findings differ from this, reinforce this, or build on this?
d. What evidence did the author provide?
By breaking the process down into steps, getting to the bottom of what the article is saying is much more manageable.
Next, you need to develop a conceptual framework for your question. What is the appropriate theory for your question? How should it be answered? For instance, if you are interested in the question presented earlier, you should examine how the subfield of health economics approaches similar questions. Once you have set up your concept of the question, collect and analyze the appropriate data. If you are doing an empirical study, that is, a project that examines observations in a mathematical way, you will probably need a background in statistics or even econometrics.
In our example hypothesis, we can use publicly available data that have been previously collected that have information on a patient’s ability to get the appointment that she desires and her insurance status. We can then see if the patient’s insurance status is a good predictor of whether or not the patient got the appointment she wanted. After we have analyzed the data in this manner, we then interpret our findings.
The final step is to disseminate the findings. The most common way of doing this is by writing a research paper or research article. In economics, researchers will usually first prepare what is called a working paper. This is a polished draft (that is, not a rough draft) of a paper that is shared with other researchers for feedback. Usually, a researcher will present this at a conference, where other researchers will attack various points and methods used in the paper. The purpose of this is not to destroy, however, but to build up. By having its weaknesses and strengths pointed out, and its flaws corrected, the evidence presented becomes more credible and the findings more sound.
Finally, the researcher will usually submit the paper to one of the many peer-reviewed economics journals to be considered for publication. In the peer-review process, the journal will remove identifying information about the author and send the article to other knowledgeable researchers in the field. They will review the paper and determine whether the findings are credible enough to share broadly through publication. Usually, the reviewers will request changes to strengthen the paper before it is published. The time between the first preparation of a manuscript in working paper form and its publication in a peer-reviewed journal can be quite long. A five-year time span is not unusual. For this reason, economists who are interested in staying abreast of the latest research will attend conferences where new research is being presented.
The process, however, doesn’t end at this point. Later, when another researcher is going through this same process, someone else who is doing his own literature review may come along and find a way to challenge or strengthen the hypothesis. Recall that research is the building of knowledge. It is a constant, continuing enterprise.
Summary
In this chapter, we presented an outline of what economists actually do to generate the ideas that are contained in the rest of this book. Economic ideas are hypothesized, tested, challenged, and improved through a continual process of economic research. The research process involves developing a research idea and plan, checking the existing literature for what has been said about the research idea, testing the question that was formed, and sharing the results. Even if you are not planning to do economic research yourself, it is helpful to know the process through which economic knowledge is formed in order to have confidence that the ideas presented in this book are being vetted, being tested, and under continuous scrutiny to improve what we know about the economic world in which we live.
QUIZ
Is each of the following statements true or false? Explain.
1. A book report is an example of economic research.
2. Primary sources such as Wikipedia, an encyclopedia, and news outlets should be used in doing a literature review.
3. Collecting data on inflation between 2000 and 2011 and presenting it in a table would be considered research.
4. An individual researcher must collect her own data.
5. Research in peer-reviewed journals may be several years old.
6. When forming a research question, you should conceptualize it in the broadest possible terms.
7. A published finding is unassailable.
8. The goal of economic research is to produce a journal article.
9. Theoretical research tests ideas, while empirical research creates ideas.
10. Economic research uses the scientific method.