Foundations of Empirical Economics and Causal Inference

These flashcards cover key vocabulary and concepts in empirical economics and causal inference as derived from the lecture notes.

What is the modern definition of economics according to Lionel Robbins?

Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.

What is the 'Credibility Revolution'?

A transformation of economics from theoretical modeling to data-driven analysis, emphasizing causal effects.

Define Omitted Variable Bias (OVB).

A bias that arises from unobserved variables that causally affect both independent and dependent variables.

What does causal evidence drive in policy making?

It must drive policy, as opposed to simply predictive patterns.

What are Randomized Controlled Trials (RCTs)?

The gold standard in research designed to eliminate OVB by randomly assigning subjects to treatment and control groups.

What is the purpose of random assignment in RCTs?

To ensure that both groups share, on average, identical characteristics.

What is the difference between internal validity and external validity in RCTs?

Internal validity refers to the results holding for the specific experimental sample, while external validity refers to the results holding for other populations.

What is the TSLS method in econometrics?

Two-Stage Least Squares (TSLS) is a method designed to isolate causal effects from observational noise.

What does it mean if two variables, A and B, are correlated?

The realization of one variable helps predict the other.

What is the relationship described by causality between two variables?

Variable A has a causal effect on B if a change in A induces a change in B, holding other variables constant.

Give an example illustrating Omitted Variable Bias.

Higher education correlates with higher earnings, but is biased by omitted factors like genetic ability that affect both.

What does the 'Short' regression model in OVB represent?

'Short' regression omits a key variable, leading to biased estimates.

What is the difference between 'Short' and 'Long' regression models?

'Short' regression misses important variables, while 'Long' regression includes them for more accurate causal modeling.

What is the effect of randomized controlled trials on OVB?

RCTs help eliminate OVB through controlled experimentation.

What is a Difference-in-Differences (Diff-in-Diff) strategy?

A method that compares changes in outcomes over time between a treatment group and a control group.

Define Regression Discontinuity Designs (RDD).

A method that exploits arbitrary cutoffs to compare groups that are nearly identical.

What are Instrumental Variables (IV)?

A third variable that influences the treatment but does not affect the outcome directly.

What does economic success depend on according to the lecture notes?

It depends on three theoretical pillars: geography, culture, and institutions.

Who championed the view that institutions are crucial for economic success?

Douglass North and Daron Acemoglu.

What are inclusive institutions characterized by?

Broad distribution of power and protected property rights.

How do extractive institutions differ from inclusive ones?

Extractive institutions have power concentrated in an elite, lack protections for property rights, and often lead to oppression.

What did the case of the Koreas illustrate about institutions?

Radical divergence in outcomes was due to different institutional regimes rather than geographic or cultural similarities.

What is the importance of external factors on democracy's effect on economic growth?

External factors complicate establishing direct causality between democracy and economic growth.

What is the econometric strategy used for measuring democratic effects on GDP?

The study employs a binary measure for democracy and various statistical techniques to analyze data.

What are the expected consequences of higher economic connectedness according to the research?

Higher economic connectedness predicts increased upward economic mobility.

What are the two types of social capital identified?

Bonding social capital and bridging social capital.

What role does television play in voter turnout according to Gentzkow's study?

Television significantly reduces voter turnout by crowding out more informative media.

What is the 'Fox News Effect'?

The influence of Fox News on changing voter behavior and increasing the Republican vote share.

How does exposure to diverse social groups influence friending bias?

Higher exposure to diverse groups reduces friending bias, fostering inter-group connections.

What was a critical finding regarding the 'Greatest Generation'?

Their civic engagement levels set a high benchmark, which later generations failed to match.

What is a recommendation for overcoming friending bias?

Reform institutional structures to foster meaningful interactions across socioeconomic lines.

What are 'economic connectedness' metrics?

Metrics that assess the interactions among individuals of varying socioeconomic statuses.

How do structural inequalities manifest in social groups?

Through differing rates of exposure and friending bias influenced by institutional settings.

What is the significance of civic engagement metrics?

They measure participation in community activities, indicating the health of democratic institutions.

How has civic participation changed from 1970 to 2000?

There has been a noticeable decline in trust and civic engagement during this period.

What does the Penn State Index measure?

It measures social capital by assessing establishment density and civic participation.

What is the impact of generational change on social capital?

Generational change accounts for a significant portion of the decline in social capital.

What did the video about climate change negotiation at COP21 emphasize?

The challenges of reaching consensus and implementation of binding commitments among countries.

What is the link between media exposure and voting behavior?

Media exposure, particularly to biased outlets, can significantly influence voter preferences.

Define 'fiscal illusion'.

A situation in which voters underestimate the costs associated with government spending.

What is Arrow's Impossibility Theorem?

A theorem stating that no voting system can perfectly convert individual preferences into a collective decision without violating fairness criteria.

What does the Meltzer-Richard model explain?

The growth of government size as a result of the desires of the median voter in relation to income distribution.

Summarize the significance of the 'Unhappy Majority' concept in Meltzer and Richard's findings.

The majority of voters are dissatisfied with the tax rate, indicating persistent political instability.

What does the acronym OLS stand for in econometrics?

Ordinary Least Squares.

What does the regression formula in econometrics typically include?

It includes parameters, independent variables, and an error term to fit the relationship in the data.

What is the purpose of balance tests in empirical research?

To verify that treatment and control groups were comparable before treatment.

What critical economic mechanism drives the findings of social capital and economic mobility?

The interaction between economic connectedness and individual socioeconomic status.