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Blending Theory and Data: A Space Odyssey

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  • Dave Donaldson

Abstract

This article describes methods used in the field of spatial economics that combine insights from economic theory and evidence from data in order to answer counterfactual questions. I outline a general framework that emphasizes three elements: a specific question to be answered, a set of empirical relationships that can be identified from exogeneity assumptions, and a theoretical model that is used to extrapolate from such empirical relationships to the answer that is required. I then illustrate the application of these elements via a series of twelve examples drawn from the fields of international, regional, and urban economics. These applications are chosen to illustrate the various techniques that researchers use to minimize the theoretical assumptions that are needed to traverse the distance between identified empirical patterns and the questions that need to be answered.

Suggested Citation

  • Dave Donaldson, 2022. "Blending Theory and Data: A Space Odyssey," Journal of Economic Perspectives, American Economic Association, vol. 36(3), pages 185-210, Summer.
    • Handle: RePEc:aea:jecper:v:36:y:2022:i:3:p:185-210
    DOI: 10.1257/jep.36.3.185
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    More about this item

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • F10 - International Economics - - Trade - - - General
    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General

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