Persuasion: Reflections on Economics, Data and the 'Homogeneity Assumption'

Abstract

This paper discusses issues to do with the empirical basis of modern economics and points towards the need to look more closely at the ‘homogeneity assumption’ that underpins much economic theory. It argues that severe problems currently prevent economics from becoming more persuasive to both students of economics and those outside the discipline. The issue involves the management of disciplinary boundaries, and excessive use of the ‘homogeneity assumption.’ Three areas of concern are explored. First is the literature on causes of growth, and the role of policy. The paper documents reasons to doubt the existence of robust relationships between growth and policy variables. Second is the ‘homogeneity assumption’ that different countries are usefully viewed as members of a single population. Third is evidence suggesting that an assumption of ‘normal’ maximizing behaviour has to be justified, not just assumed, and that regular deviations from the usual maximizing assumptions occur with gender and culture. The paper argues that a central issue in economic methodology and pedagogy should be, as North implicitly argues, the negotiation of disciplinary boundaries: what economics can versus cannot explain. It suggests more explicitly basing the choice of explanatory models on empirics identifying where the model applies.homogeneity, neo- institutional economics, robustness testing, methodology, policy advice, experimental economics.