The major difference between Econometrics and Statistics

 

A common generalization is that econometrics is just another applied branch of statistics that is focused on economics.

There is certainly a lot of overlay and similarities between econometrics and statistics. While the two disciplines evolved together, however, the 2 disciplines are motivated by different central approaches. Econometrics focuses on a theory-driven approach, which comprises a theoretical model that ascribes a causal relationship between an interpretation and its outcome (termed causal-effect relationship). The underlying objective here is that the data has no intrinsic value, but it is given value when interpreted and analyzed in a rational manner, and in light of a well-defined theory.

In econometrics, questions can be asked about the validity and quality of the data, if it does not fit the theoretical model or if efficient predictions cannot be derived from the data. Econometricians believe limitations exist in what data can disclose, and thus there is a need to rely on theoretical methods in order to produce results

 Statisticians on the other hand, are mostly concerned with statistical inference (data-driven approach), with a focus on data retrieval.  Its primary objective is to ensure that the data sample is a true representation of the population as a whole. The notion is that improved data analysis and interpretation is dependent on the value of the data and not the theory or theoretical model, and if the data is incompatible with the theory, it can be sacrificed for the data, by seeking alternative theories or theoretical models.

 However, econometrics fuses economic assumptions and theories with statistics and this interaction of theory and data-driven approaches are vital for success in research. Furthermore, it is very theoretical and focuses on causal questions such as does attending an expensive university impact on individual’s future earnings, what is the degree to which a monetary policy can alter economic growth and related public issues that matter to an individual, a firm, or the government.

In conclusion, both disciplines are interrelated, and whichever discipline gets precedence of use, depends on the context of the research problem.

 

Masterly is a London-based research and development network, which connects research institutions and businesses to modellers from all over the world.

 

Tagged With: Institutional research, Political Science, Public Health, Public Policy, Sociology

Related Posts: What are the Data Analysis Issues, we face?  The difference between Theory and Theoretical Framework

 

About Author:  Emmanuel Igbinoba is a researcher, associated with Masterly UK