Doing Research in Economics

1. Doing Research in Economics Professor Charlie Karlsson Jönköping International Business School and CESIS

2. Agenda • What is research? • The research process in economics • Surveying the literature • Writing as a tool for economic research • Writing as a product of economic research • Critical reading • Theorising • Locating data • Manipulating data • Empirical testing • Communication of results

3. 1. What is research? • Research is the creation of new valid knowledge, i.e. an extension of the research frontier • Research is based upon the existing up-to-date knowledge in the field • Knowledge is more than data or information – it is structured information • Knowledge is created by constructing a line of arguments • An argument is an assertion or a claim supported by reasons or evidence

4. The construction of knowledge • Scholars create knowledge by constructing competing arguments using the following tools: • Mental Processes – thinking about an argument • Oral Discourse – verbalising the argument • Diagram Techniques – illustrating the argument • Mathematic Techniques – manipulating equations to test the logic of the argument • Writing – to present and spread the argument

5. How are arguments evaluated? • What are the reasons behind the argument? • Does the argument make sense? Why or why not? • Is the logic flawed? • What are the underlying explicit and implicit assumptions? Are they flawed? • How critical are the assumptions, i.e. would different assumptions lead to different conclusions? • What is the empirical evidence? Does it support the conclusion? • In light of the reasons and evidence provided, is the argument persuasive? If so, the argument is valid until it is invalidated by new arguments.

6. The scientific method • Select a scientific problem or question • Apply a theory to derive hypotheses about the problem or question • Test the hypotheses by comparing its predictions to evidence from the real world • If a hypothesis fails the test check the line of arguments and if it is OK reject it • If you can’t reject a hypothesis you complete your line of arguments

7. 2. The research process in economics • Develop a well defined research question • Survey the literature in the field • Define a clear purpose • Select a theory proper for the research question • Develop hypotheses • Test your hypotheses • Interpret your results and draw conclusions • Communicate your research

8. The objective of a research project • is to analyse some aspect of a significant issue or problem

9. Step 1: Defining the scope of the research • What is the research topic? • What is the research question? • What is the tentative research hypotheses? • What is the current knowledge, i.e. where goes the research frontier? • What is the purpose?

10. What characterises a good research question? • Problem-oriented • Analytical • Interesting and significant • Amendable to economic analysis • Feasible, given the time and resources available

11. Strategies for selecting research questions (1) • Pick a general topic area that interests you, ideally one in which you have some background • Start reading the literature, not merely to see what has been done, but also to identify what research questions remain to be answered or what problems remain to be solved.

12. Strategies for selecting research questions (2) • Select a promising from what you have found in the literature: • Could an interesting previous study be applied to a new place or time? • Are there conflicting findings on some question, which you might try to reconcile? • Studies often conclude suggesting questions for future research. • The literature survey may reveal gaps in the current knowledge that you can explore.

13. Step 2: Surveying the literature • What is currently known? • What has been discovered to date on a given topic? • Objective: to identify and become familiar with the major studies that have been published on a topic • Start with the most recent publications and work backwards to the roots

14. Step 3. Selecting one theory • Based upon your literature survey you must choose one theory, which is relevant for explaining your research problem • Motivate your choice • Never spend time on long presentations of alternative theories – instead give references to literature, where competing theories are presented

15. Step 4: Analysing the problem • The theoretical analysis of the research problem, is the process, where theory is applied to shed light on the problem: • What are the essential concepts comprising the problem being analysed? • How are these essential concepts related? • What do these relationships imply? • The result of this analytical process is the research hypothesis (hypotheses). • A research hypothesis is the proposed answer to your research question. • Hypotheses are derived from economic theory (and earlier empirical research)

16. Step 5: Testing your analysis (1) • The scientific method in economics is strongly dependent upon empirical testing • Empirical testing implies comparing the predictions of theory, i.e. the hypotheses, with appropriate real-world evidence • You must decide how you will go about to test your hypotheses, i.e. decide your research design, which involves • Finding a good, large and relevant data set, and • Selecting an econometric method

17. Step 5: Testing your analysis (2) • Key questions: • How to choose an econometric method, which produce the best possible and most reliable results? • How to adequately test the hypotheses? • Remember that a hypothesis is either rejected or not rejected. It is never accepted! • If you can not reject a hypothesis, then the theoretical proposition is provisionally accepted until it eventually is rejected

18. Step 5: Testing your analysis (3) • If a hypothesis is rejected then one must ask the following questions: • Is there something wrong with the theory? • Is there something wrong with the data? • Is there something wrong with the econometric method? • If you find that something is wrong you have to retake the process, otherwise you continue to present your results in the thesis

19. Step 6: Interpreting the results and drawing conclusions (1) • What are the results of the empirical testing of the research hypothesis? • Are they consistent with the predictions of theory? • Are they consistent with the results form earlier empirical research? • Are there any problems (multicollinearity, heteroskedasticity, etc.) with the econometric testing that need to be corrected?

20. Step 6: Interpreting the results and drawing conclusions (2) • Are there shortcomings with the econometric method that limit or weaken the results? • Given the answers to the above questions: what can be concluded about the results? • To what extent are they in line with the hypotheses? • What can be concluded about your analysis and about your research question more broadly?

21. What is good research? • Good research, is research that follows the scientific method, wherever the results lead, even if they reject one or several hypotheses • A research projects that rejects a hypotheses is not failed because it still advances our knowledge – in this case by eliminating one hypothesis as an explanation to the research problem

22. Step 7: Communicating the findings of the research project • A written report where the author makes a case for the validity of her/his results based on the logic, rigour and empirical evidence of the research. • Oral presentation (and defence) at the final seminar • Oral presentation at conferences • Publication as a working paper • Publication in a scientific journal (or in an edited book)

23. Writing a research proposal • Statement of the nature of the problem • The research question • Survey of the literature • Research design • References

24. 3. Surveying the literature • Why is a literature survey necessary? • Where to search: popular literature vs scholarly literature vs internet sources • How to search: Developing an effective search strategy • Obtaining the resources

25. Why is a literature survey necessary? • To advance the state of knowledge, you need to know what the state of knowledge is • You must create your own sense for what is known and what is not known • The literature provide ideas for your own research • The literature helps you to design your own study by showing how previous approaches either were or were not successful

26. The quality hierarchy • Scientific journals with peer review • Dissertations • Edited books with peer review • Monographs published by scientific publishers • Working papers • Internet sources

27. Where to search? • EconLit • JStore • IDEAS/Repec • Palgrave’s • Handbooks • Collected volumes • Journal of Economic Literature (JEL) • Journal of Economic Perspectives • Course literature

28. How to search? • To locate information efficiently, one needs to use a search strategy • Two general approaches: • Browsing • Keyword searching

29. Browsing • Manual examination of written material for useful information or references to useful information • The American Economic Association and JEL use a hierarchical system to classify information in economics: http://www.aeaweb.org/journal/elclasjn.html

30. Keyword Searching • Keyword searching use search engines • on the World Wide Web such as Goggle and Google Scholar or • on specialised data bases such as EconLit or Social Science Citation Index (SSCI) • Remember to • start with the most recent years • Use Boolean searching (AND, OR, NOT) to make your search more precise

31. A basic search strategy • Begin by stating your research topic or question • Identify important concepts related to your topic • Brainstorm to create a list of keywords that describe these concepts • Determine which search features may apply • Choose the appropriate database • Read the search instructions for the database • Create a search expression using the appropriate syntax • View the results • Modify the search if necessary • Try the same search with an other data base

32. Obtaining the material • More and more journal articles and working papers are available in full-text • Some of them you can reach via EconLit at KTH Library. • You may also test: http://rfe.org • Other resources you may test are www.nber.orghttp://papers.ssrn.comhttp://econwpa.wustl.edu

33. REMEMEBER! • You need to collect a substantial material to cover the current knowledge and to get ideas for your own research • Think like this: your thesis must contain a list of relevant references at least two pages long, i.e. at least 40 references

34. Scholarly references and citation styles (1) • We strongly recommend that you use the parenthetical form for references in the text, for example Lööf (2005) • You may consult • Turubian, K. (1996), Manual for Writers of Term Papers, Theses and Dissertations, 6th ed., for general references and citation and • Harnock, A. & E. Kleppinger, Online: A Reference Guide to Using Internet Sources available at http://www.bedfordstmartins.com/online for citation of online documents

35. Scholarly references and citation styles (2) • There are three major schools for referencing and citations: • Modern Language Association (MLA) available athttp://www.wisc.edu/writing/Handbook/DocMLA.html • American Psychological Association (APA) available athttp://owl.English.purdue.edu/handouts/research/r_apa.html • The Chicago style avilable athttp://www.liu.edu/cwis/cwp/library/workshop/citchi.htm

36. 4. Using writing as a tool for economic research • Writing to learn • Composition as a creative process • The structure of an argument • Examining an argument • Three types of reasoning: deductive, inductive and warrant-based • What makes for a persuasive argument? • An important caveat

37. Writing to learn • Economist use writing for two purposes: • Writing as a Product, a form of communication to disseminate research results • Writing as a Process for deriving the research results • Writing forces you to think concretely, i.e. to figure out exactly what you mean. • Writing is a tool of discovery

38. Composition as a creative process (1) • The process of writing is called composition, which includes • analysis, i.e. taking something apart to understand it, and • synthesis, i.e. putting pieces together to make a whole • It involves searching for relationships between facts, theories and ideas that make up the raw material for your research

39. Composition as a creative process (2) • Composition needs time to develop and to mature • Hence, it is important • to start early • to write a draft • to discuss the main ideas with supervisors and colleagues • to take time off from your writing to allow your sub-conscious to do its job

40. Composition as a creative process (3) • Refining a thesis or a paper implies • re-viewing the information • re-thinking the way it is organised • questioning the theoretical framework • questioning the hypotheses • re-constructing the arguments • re-viewing the data • questioning the econometric methods • looking for new patterns of meaning

41. Composition as a creative process (4) • Creative and critical writing almost always implies that you have to throw away parts of what you have written • Always concentrate on the most relevant and most important aspects • In Economics, we always disregard aspects of lesser relevance and importance • What you shall provide is a structure, which highlights the most influencing factors in explaining a phenomena but never try to make a catalogue of all factors that may influence a phenomena

42. The structure of the argument (1) • The purpose of scholarly writing is to make an argument that is persuasive to experts in the field • When completed, scholarly writing follows a logical, hierarchical structure, in which the main thesis is supported by a series of nested arguments that lead logically to the thesis as a conclusion

43. The structure of the argument (2) • The thesis is at the top • It is supported by a number of major reasons • Under each major reason there is a number of supporting arguments • Points that do not lead to the thesis either directly or indirectly shall be omitted

44. What does it mean to say that a conclusion follows from the evidence? • An inference is a conclusion reached after reasoning logically about facts and relationships • If the evidence leads us logically to the inference as a conclusion, then we say that the conclusion ”follows” • A logic fallacy is an argument that is flawed because the conclusion does not actually follow from the reasons stated

45. Logical fallacies (1) • Straw man – mischaracterizing a position by omitting its strongest reasoning • Special pleading – selectively using the available evidences • Begging the question – making an assertion in which the reason given doesn’t really support the conclusion • Affirming the consequent – drawing conclusions based on unexamined premises

46. Logical fallacies (2) • Ad hominem – refuting the argument by attacking the person, rather than his/her arguments • Appeal to authority – accepting an argument because an expert endorses it • Appeal to the people – accepting a position because many others do, without examining the argument • Post hoc, ergo propter hoc – what comes before was the cause

47. Logical fallacies (3) • Fallacy of composition – what is true at the micro level must be true at the macro level and vice versa • Appeal to pity – using sympathy for one issue as justification for another issue • False analogy – Drawing parallels between two cases where there are enough substantive differences to question the comparison

48. Examining an argument • Identify the major claim • Identify the major evidences • Identify the supporting points • Is there a logical sequence of reasoning? • Are there any logical fallacies? • Does the evidences and the supporting points lead to the claim? • Don’t be afraid to criticise reasoning that isn’t logical and supported by evidence

49. Three types of reasoning (1) • Deductive reasoning starts from one or more general principles and derives specific predictions from them • The predictions are deductions • A valid deduction is one which the conclusion must follow from the premises • When scholars in economics theorize, they are typically using deductive reasoning

50. Three types of reasoning (2) • An inductive argument is one that reasons in the opposite direction from deduction • Given some specific cases, what can be inferred about the underlying general rule? • The reasoning process follows the same steps as in deduction • The difference is the conclusions: an inductive argument is not a proof, but rather a probalistic inference • When scholars use statistical evidence to test a hypothesis, they are using inductive logic