What Is Applied Economics?

What Is Applied Economics?

I am beholden to the brilliant economic theorists and econometricians who have come before me.  They spent their careers developing the core theoretical models and econometric tools that I use every day in my research and teaching.  In all honesty, I am in awe of those researchers who can conceptualize how economic agents or the economy as a whole works into a succinct and elegant model, as it is definitely not my comparative advantage.  An MA in Economics will not train you to develop new theoretical models.  Instead, what an MA in Economics will teach you to do is apply these models to study your specific questions of interest.  Applied economics is the application of core theoretical economics and econometrics to answer questions in a wide range of fields.

A Breakdown of Applied Economics

Applied economists rely both on theoretical economics and econometric tools to answer questions.  For example, in Microeconomics (ECON-600), I ask students to analyze the impact of the Farm Bill of 2014 on agricultural prices and output.  Clearly there is currently no data that a student can use to answer this question given that the law was just passed last year.  However, applied economists can apply core theoretical models of, for example, producer behavior and supply and demand, to make predictions about what impact changes in subsidies or crop insurance programs might have on the agricultural sector.  While some of this analysis can be done using fairly simple graphs, a more sophisticated analysis might use outside estimates of such things as the elasticities of supply and demand in the industry to refine the predictions of the model.

Applied Economists in Action

On the other hand, sometimes economists have access to data they can use to empirically estimate the impact of policies or other economic shocks on the economy or individuals in the economy.  To provide just one example, in one of my papers, “Does Trade Adjustment Assistance Make A Difference?” I was interested in whether the Trade Adjustment Assistance (TAA) program is effective in helping workers who have lost their jobs due to increased trade flows find new, well-paying jobs.  To do this, I used data from the Department of Labor and the US Census Bureau’s Current Population Survey and an empirical methodology known as propensity score matching.  Intuitively, I matched each worker who participated in the TAA program with another, similar worker who had also lost their job but not participated in the TAA program, and compared their employment outcomes.  I found that while the TAA program in general did not help workers find new, well-paying jobs, workers who participated in the training component of the program did significantly better on the job market.  Students in American University’s Applied Economics program will learn how to use econometric tools like these in the two course sequence in econometrics (ECON-623 and ECON-624), and get practical experience using these tools in the elective courses that follow this training.

Entering the Field of Applied Economics

Most professional economists are applied economists.  They work in government agencies, financial institutions, consulting firms, and non-governmental organizations solving problems and answering questions using both theoretical models and econometric tools.  The MA in Economics at American University will train students in these critical skills, and prepare them for an exciting career as an economist.

About the Author

Professor Reynolds joined the department in 2003 after completing her PhD at the University of Virginia. Her research interests include the political economy of trade protection, particularly antidumping protection, and the impact of trade liberalization on workers and firms. She will be teaching ECON-600 Microeconomic Theory. Learn more

To learn more about American University’s online Master of Arts Economics, Applied Economics specialization, request more information or call us toll free at 855-725-7614.