Tuesday, May 24, 2005


Econometrics rectifies, actually minimizes the errors found in Mathematical models. So it is of extreme importance for Economists & Econometricians to have a proper knowledge about Math as well as Econometrics.For those who have not yet been introduced to the basics of Econometrics, i will give a brief introduction on what it means and the steps involved.
Econometrics is a social science where the tools of Economics and Mathematics are applied to Economic theories so as to determine the relationships between the endogenous variables, if any; or whether the mathematical model is in dearth of variables i.e the dependent variable depends on exogenous variables(not included in the model originally). This requires a rearrangement or the removal of the choice variables.
The methodology which is usually followed:
(1)Understanding the Economic theory in all its totality.
(2)Framing a Mathematical model based on the Theory containing variables and constants.
(3)Inserting an error/stochastic term (the term stochastic because of its randomness) thus converting the original model into an Econometric one.
(4)Collection of data(having a large Sample size is advantageous)(only some values are plotted using the samples, the rest of the values are generated using a Mathematical process known as Interpolation)
(5)Estimation of the coefficients;either Interval/Point estimation. Interval Estimation is mostly done because it reduces the error owing to estimation, the S.E(standard error)is minimized.
(6)Testing of Hypothesis.
(7)Used for Forecasting purposes
I understand that this is a very necessary course for all Undergrads.The tricks in Economics are many-all yet to come!

Of the division of process in Technology

Some thoughts taken from Adam Smith's masterpiece " The Wealth Of Nations" written in 1776. The example given by him is of pin making. A person is needed for straightening the wire,one for cutting,one for shaping it and many others are required for its completion. Suppose totally there are 10 distinctive processes; take the case where there are 10 labourers working independently towards making pins. The total output would be, say TQ. But when this distinctive process is distributed among the 10 labourers, labour gets divided and the total output becomes, say TQ + a,(where 'a' is a constant which has an expected value(E) of more than 2TQ.
The reasons for this increase as mentioned by him are mainly three:
1)Improved dexterity
2)Saving of time
3)Application of machinery invented by workmen
This division of Labour is also known as Specialization. This has creeped into all aspects of the economy -Medicine, Engineering and even Education. This also increases the employment opportunities in a nation. The opulent countries all are higly specialized in all aspects of their working, which has resulted in an increase in efficiency, known as X-efficiency which is caused about by Technology advances.
The latest of these as seen in the media, is BPO(Business Process Outsourcing) and KPO(Knowledge Process Outsourcing) whereby a particular firm Specialises in a business process fully and, mostly these Specialised firms are set up in developing nations and does work for the Developed countries thus letting the Developed nations have a share in their low costs, owing to the low level of wages prevailing. Presently there is a division of technology too! All this has been brought about by Globalization and Liberalization. Has this resulted in an Efficiency increase in the developing countries? Will it contribute in the near future? Are the Developing countries gaining by the Theory of Comparitive advantage(also Absolute Advantage)?
P.S.Only the example and the reasons for increase in production and productivity are taken from the book.

Friday, May 20, 2005

Recommended books

For an undergraduate and for those weak in Math in their masters can do their study with the following text books
1) Fundamentals Of Mathematical Economics BY Alpha C Chiang
2) Introduction To Mathematical Economics BY Edward T Dowling IN Schaum's series
They both form a very good combination. Schaum's series is amazing.I just got my personal copy of the 2nd book.
I am doing my reading on Mathematical Economics now.Very soon i will come up with a blog ranking the top 5 universities/institutions in UK, USA and India in economics


Well,there had been a paucity of posts as i just returned from a trip to Andhra Pradesh(AP), 5 days back. The situation there is very pitiable-the place i went to was a village. Kerala is very developed in comparison with AP. This has got to do mainly with the polity in power. The strength of communism is shown in kerala where the inequalities of income and wealth are kept to the minimum. It truly is an achievement.
The condition is as follows
no proper shelter
lack of electricity
very low wages
environmental externalities
On the whole the state of well being is absent.I heard that there the women are paid just Rs.30 for a days work as compared to a wage not less than 100 in kerala. Moreover it seems that, there, a labourer is willing to work for a whole year for a meager Rs.1800.
I was upset about the whole issue,it has been disturbing me ever since. The absence of education is very much felt.
The riches there are in lands and gold.The agrarian sector appears to be strong founded but i doubt this greatly as how can a sector be called as developing when the main factors-the labour, is inadequately remunerated!