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Theory, General Equilibrium, and Political Economy in Development Economics

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  • Daron Acemoglu

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.

Suggested Citation

  • Daron Acemoglu, 2010. "Theory, General Equilibrium, and Political Economy in Development Economics," Journal of Economic Perspectives, American Economic Association, vol. 24(3), pages 17-32, Summer.
  • Handle: RePEc:aea:jecper:v:24:y:2010:i:3:p:17-32
    Note: DOI: 10.1257/jep.24.3.17
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    References listed on IDEAS

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    1. James Heckman & Lance Lochner & Christopher Taber, 1998. "Explaining Rising Wage Inequality: Explanations With A Dynamic General Equilibrium Model of Labor Earnings With Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(1), pages 1-58, January.
    2. Ferraz, Claudio & Finan, Frederico S., 2008. "Motivating Politicians: The Impacts of Monetary Incentives on Quality and Performance," IZA Discussion Papers 3411, Institute for the Study of Labor (IZA).
    3. Eric Weese, 2011. "Political Mergers as Coalition Formation," Working Papers 997, Economic Growth Center, Yale University.
    4. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-298, April.
    5. Claudio Ferraz & Frederico Finan, 2011. "Electoral Accountability and Corruption: Evidence from the Audits of Local Governments," American Economic Review, American Economic Association, vol. 101(4), pages 1274-1311, June.
    6. Angrist, Joshua D, 1995. "The Economic Returns to Schooling in the West Bank and Gaza Strip," American Economic Review, American Economic Association, vol. 85(5), pages 1065-1087, December.
    7. Hoyt Bleakley, 2007. "Disease and Development: Evidence from Hookworm Eradication in the American South," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 73-117.
    8. Markus Goldstein & Christopher Udry, 2008. "The Profits of Power: Land Rights and Agricultural Investment in Ghana," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 981-1022, December.
    9. Elie Tamer, 2003. "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 147-165.
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    More about this item

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • P00 - Economic Systems - - General - - - General

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