Deductive Method in Economics
The deductive method is a systematic approach to studying an economic issue where the analysis moves from general to specific. In this method, we do have a general theory, idea, or concept, and we want to test such idea in a specific context; then the method we follow is deductive.
Since we do have a general theory, idea which specifies the relationship between the variables, this method is called “A Priori”.
This method was mostly used by the classical economists. For eg. Say’s “law of market” states that supply creates its own demand, which means aggregate supply and aggregate demand are equal.” This is a general theory and if we want to test this theory in Nepal’s case, we follow the deductive method.
Since, it is a systematic approach, we follow the following steps under the deductive method.
- Step 1: Problem identification
- Step 2: Assumption and hypothesis testing
- Step 3: Data collection
- Step 4: Data analysis, interpretation and conclusion
Inductive Method in Economics
In this method, we move from specific to general where we collect information from the representative number of cases, derive conclusion and generalize it. So, this method is used to develop new theory, idea or concept. This method is known as empirical method which was introduced in economics by historical school of economists.
Since it is a systematic method of studying an economic issue, it normally follows the following steps:
- Step 1: Problem identification
- Step 2: Data collection
- Step 3: Data analysis
- Step 4: Conclusion and generalization
Difference Between Deductive and Inductive Method
| Deductive Method | Inductive Method |
|---|---|
| General to specific approach | Specific to general approach |
| Known as Priori or abstract method | It is empirical method |
| Mostly used by classical economists | Mostly used by historical economists |
| Used for theory testing | Used for theory building |
| Follow top-down approach | Follows button-up approach |
Deductive & Inductive Method – Which one is better? Why?
Both inductive and deductive method have their own relative merits and demerits and so it is not possible to decide which one is absolutely better then other. It depends on the objective and context to decide relative superiority of a method to other.
If our objective is to test the validity of any economic theory in the specific context then we need to use deductive method. Similarly, if the objective is for developing a new idea or theory then we use inductive method, It means the objective of the study makes a method better to others.
Similarly, there may be the situation in which either deductive or inductive method can be used separately. Fir example, if we do not have required information or not possible to collect such information due to the economic or technical reasons, then we can not use the inductive method. So the only option is to use the deductive method.
There may be the situation that no existing theories or ideas are available to explain the situation. In this case only the inductive method can be used which collects the fresh information and develop the theory.
However, it is agreed that inductive and deductive method are not substitutes but complementary to each other. So, for a complete scientific study of economy, both methods should be used as per the requirement.
Deductive methods provides logics and arguments while inductive method provides data and facts. The data without logic or arguments are simple the numbers which does not explain anything. Similarly, the logics without facts are simply the arguments and are not acceptable. It means inductive and deductive methods make a complete study.
In the words of Schomoller as “both feet are required for healthy walking. So, as the inductive and deductive method for a complete scientific study of the economics”.