ECO 344 - Applied Econometrics I
Chapter 1
Muhammad Salman Khalid
School of Economics & Social Sciences
August 22, 2025
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Outline
1 What is Econometrics?
2 Data & its Types
3 Empirical Analysis
4 Causal Inference
5 Summary & Discussion
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What is Econometrics?
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Econometrics
”Econometrics is based upon the development of Statistical Methods for
estimating economic relationships, testing economic theories, and
evaluating different government, business and economic policies”
Effect of Training Program on Worker’s Hourly Wage?
Salman (IBA) Chapter 1 4 / 23
Econometrics
”Econometrics is based upon the development of Statistical Methods for
estimating economic relationships, testing economic theories, and
evaluating different government, business and economic policies”
Effect of Training Program on Worker’s Hourly Wage?
Do returns on different investment comply with the economic
theories?
Salman (IBA) Chapter 1 4 / 23
Econometrics
”Econometrics is based upon the development of Statistical Methods for
estimating economic relationships, testing economic theories, and
evaluating different government, business and economic policies”
Effect of Training Program on Worker’s Hourly Wage?
Do returns on different investment comply with the economic
theories?
Another common application is the forecasting of important
macroeconomic indicators such as interest rate, inflation rate, gross
domestic product etc.
Salman (IBA) Chapter 1 4 / 23
Econometrics
”Econometrics is based upon the development of Statistical Methods for
estimating economic relationships, testing economic theories, and
evaluating different government, business and economic policies”
Effect of Training Program on Worker’s Hourly Wage?
Do returns on different investment comply with the economic
theories?
Another common application is the forecasting of important
macroeconomic indicators such as interest rate, inflation rate, gross
domestic product etc.
Effect of political campaigns expenditure on voting outcomes.
Salman (IBA) Chapter 1 4 / 23
Econometrics
”Econometrics is based upon the development of Statistical Methods for
estimating economic relationships, testing economic theories, and
evaluating different government, business and economic policies”
Effect of Training Program on Worker’s Hourly Wage?
Do returns on different investment comply with the economic
theories?
Another common application is the forecasting of important
macroeconomic indicators such as interest rate, inflation rate, gross
domestic product etc.
Effect of political campaigns expenditure on voting outcomes.
Effect of school spending on student performance in classroom.
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Data & its Types
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Data
Data is the set of information about particular subject/s which is used to
analyze something and make decisions.
There are two types of classification of data.
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Data
Data is the set of information about particular subject/s which is used to
analyze something and make decisions.
There are two types of classification of data.
Classification based on data generating process.
Salman (IBA) Chapter 1 6 / 23
Data
Data is the set of information about particular subject/s which is used to
analyze something and make decisions.
There are two types of classification of data.
Classification based on data generating process.
Classification based on the structure of data.
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Data Generating Process
Data generating process as the name suggests is how the data is being
generated.
There are two types of data based on its generating process.
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Data Generating Process
Data generating process as the name suggests is how the data is being
generated.
There are two types of data based on its generating process.
Experimental Data - Collected mostly in lab environment - However,
there are ways to collect experimental data in Social Sciences like
Randomized Control Trial (RCT).
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Data Generating Process
Data generating process as the name suggests is how the data is being
generated.
There are two types of data based on its generating process.
Experimental Data - Collected mostly in lab environment - However,
there are ways to collect experimental data in Social Sciences like
Randomized Control Trial (RCT).
Non-Experimental Data - Observational Data like Census Data etc.
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Data Structure
There are four types of data based on its structure.
1 Corss-Sectional Data
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Data Structure
There are four types of data based on its structure.
1 Corss-Sectional Data
Consists of a sample of individuals, households, firms, cities, state,
countries or a variety of other unit in a single time period.
Salman (IBA) Chapter 1 8 / 23
Data Structure
There are four types of data based on its structure.
1 Corss-Sectional Data
Consists of a sample of individuals, households, firms, cities, state,
countries or a variety of other unit in a single time period.
2 Time Series Data
Salman (IBA) Chapter 1 8 / 23
Data Structure
There are four types of data based on its structure.
1 Corss-Sectional Data
Consists of a sample of individuals, households, firms, cities, state,
countries or a variety of other unit in a single time period.
2 Time Series Data
A time series data consist of observation on a variable or several
variable over time like stock prices, GDP etc.
Salman (IBA) Chapter 1 8 / 23
Data Structure
There are four types of data based on its structure.
1 Corss-Sectional Data
Consists of a sample of individuals, households, firms, cities, state,
countries or a variety of other unit in a single time period.
2 Time Series Data
A time series data consist of observation on a variable or several
variable over time like stock prices, GDP etc.
3 Pooled Cross Section Data
Salman (IBA) Chapter 1 8 / 23
Data Structure
There are four types of data based on its structure.
1 Corss-Sectional Data
Consists of a sample of individuals, households, firms, cities, state,
countries or a variety of other unit in a single time period.
2 Time Series Data
A time series data consist of observation on a variable or several
variable over time like stock prices, GDP etc.
3 Pooled Cross Section Data
It is the combination of cross-sectional data and time series data.
Salman (IBA) Chapter 1 8 / 23
Data Structure
There are four types of data based on its structure.
1 Corss-Sectional Data
Consists of a sample of individuals, households, firms, cities, state,
countries or a variety of other unit in a single time period.
2 Time Series Data
A time series data consist of observation on a variable or several
variable over time like stock prices, GDP etc.
3 Pooled Cross Section Data
It is the combination of cross-sectional data and time series data.
Time series of cross-sectional data.
Salman (IBA) Chapter 1 8 / 23
Data Structure
There are four types of data based on its structure.
1 Corss-Sectional Data
Consists of a sample of individuals, households, firms, cities, state,
countries or a variety of other unit in a single time period.
2 Time Series Data
A time series data consist of observation on a variable or several
variable over time like stock prices, GDP etc.
3 Pooled Cross Section Data
It is the combination of cross-sectional data and time series data.
Time series of cross-sectional data.
4 Panel Data
Salman (IBA) Chapter 1 8 / 23
Data Structure
There are four types of data based on its structure.
1 Corss-Sectional Data
Consists of a sample of individuals, households, firms, cities, state,
countries or a variety of other unit in a single time period.
2 Time Series Data
A time series data consist of observation on a variable or several
variable over time like stock prices, GDP etc.
3 Pooled Cross Section Data
It is the combination of cross-sectional data and time series data.
Time series of cross-sectional data.
4 Panel Data
A panel data consist of a time-series for each cross-sectional member in
the data set.
Salman (IBA) Chapter 1 8 / 23
Data Structure
There are four types of data based on its structure.
1 Corss-Sectional Data
Consists of a sample of individuals, households, firms, cities, state,
countries or a variety of other unit in a single time period.
2 Time Series Data
A time series data consist of observation on a variable or several
variable over time like stock prices, GDP etc.
3 Pooled Cross Section Data
It is the combination of cross-sectional data and time series data.
Time series of cross-sectional data.
4 Panel Data
A panel data consist of a time-series for each cross-sectional member in
the data set.
Difference between Pooled Cross Sectional & Panel Data?
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Empirical Analysis
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Empirical Economic Analysis
An empirical economic analysis use data to test a theory or estimate a
relationship.
The first step in any empirical analysis is to carefully formulate the
question of the interest.
In your final paper, you will follow all these five steps and hopefully have
something worthy to pursue in future.
Salman (IBA) Chapter 1 10 / 23
Empirical Economic Analysis
An empirical economic analysis use data to test a theory or estimate a
relationship.
The first step in any empirical analysis is to carefully formulate the
question of the interest.
Second step is to construct a formal economic model.
In your final paper, you will follow all these five steps and hopefully have
something worthy to pursue in future.
Salman (IBA) Chapter 1 10 / 23
Empirical Economic Analysis
An empirical economic analysis use data to test a theory or estimate a
relationship.
The first step in any empirical analysis is to carefully formulate the
question of the interest.
Second step is to construct a formal economic model.
Third step is to find the appropriate data.
In your final paper, you will follow all these five steps and hopefully have
something worthy to pursue in future.
Salman (IBA) Chapter 1 10 / 23
Empirical Economic Analysis
An empirical economic analysis use data to test a theory or estimate a
relationship.
The first step in any empirical analysis is to carefully formulate the
question of the interest.
Second step is to construct a formal economic model.
Third step is to find the appropriate data.
Fourth step is to estimate the economic model using appropriate data.
In your final paper, you will follow all these five steps and hopefully have
something worthy to pursue in future.
Salman (IBA) Chapter 1 10 / 23
Empirical Economic Analysis
An empirical economic analysis use data to test a theory or estimate a
relationship.
The first step in any empirical analysis is to carefully formulate the
question of the interest.
Second step is to construct a formal economic model.
Third step is to find the appropriate data.
Fourth step is to estimate the economic model using appropriate data.
Finally the last step is to report your findings in an organized format.
In your final paper, you will follow all these five steps and hopefully have
something worthy to pursue in future.
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Randomness in Data
Non-Random Data - Convenience Sampling
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Randomness in Data
Non-Random Data - Convenience Sampling
Random Data - The data that is collected from a sample of random
subjects.
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Randomness in Data
Non-Random Data - Convenience Sampling
Random Data - The data that is collected from a sample of random
subjects.
Selection Bias
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Randomness in Data
Non-Random Data - Convenience Sampling
Random Data - The data that is collected from a sample of random
subjects.
Selection Bias
Dependance Bias
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Randomness in Data
Non-Random Data - Convenience Sampling
Random Data - The data that is collected from a sample of random
subjects.
Selection Bias
Dependance Bias
Quasi-Random - Two component of each data point - Random &
Non-Random
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Randomness in Data
Non-Random Data - Convenience Sampling
Random Data - The data that is collected from a sample of random
subjects.
Selection Bias
Dependance Bias
Quasi-Random - Two component of each data point - Random &
Non-Random
You can predict the Quasi-Random data but not exactly.
Salman (IBA) Chapter 1 11 / 23
Randomness in Data
Non-Random Data - Convenience Sampling
Random Data - The data that is collected from a sample of random
subjects.
Selection Bias
Dependance Bias
Quasi-Random - Two component of each data point - Random &
Non-Random
You can predict the Quasi-Random data but not exactly.
Such as GDP, Stock Prices, Weight of student in a class etc
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Causal Inference
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Causal Inference
Economists are concerned with the causal relationships.
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Causal Inference
Economists are concerned with the causal relationships.
Finding an association between two variable might be suggestive &
not casual.
Salman (IBA) Chapter 1 13 / 23
Causal Inference
Economists are concerned with the causal relationships.
Finding an association between two variable might be suggestive &
not casual.
The strong correlation between chocolate consumption and the number
of nobel prices - Causal relationship??
Salman (IBA) Chapter 1 13 / 23
Causal Inference
Economists are concerned with the causal relationships.
Finding an association between two variable might be suggestive &
not casual.
The strong correlation between chocolate consumption and the number
of nobel prices - Causal relationship??
New agriculture policy affecting the corp yield this year? - Causal
relationship?
Salman (IBA) Chapter 1 13 / 23
Causal Inference
Economists are concerned with the causal relationships.
Finding an association between two variable might be suggestive &
not casual.
The strong correlation between chocolate consumption and the number
of nobel prices - Causal relationship??
New agriculture policy affecting the corp yield this year? - Causal
relationship?
Cetris Peribus - Keeping all other factors constant.
Salman (IBA) Chapter 1 13 / 23
Causal Inference
Economists are concerned with the causal relationships.
Finding an association between two variable might be suggestive &
not casual.
The strong correlation between chocolate consumption and the number
of nobel prices - Causal relationship??
New agriculture policy affecting the corp yield this year? - Causal
relationship?
Cetris Peribus - Keeping all other factors constant.
Potential Outcome/Counter factual
Salman (IBA) Chapter 1 13 / 23
Causal Inference
Economists are concerned with the causal relationships.
Finding an association between two variable might be suggestive &
not casual.
The strong correlation between chocolate consumption and the number
of nobel prices - Causal relationship??
New agriculture policy affecting the corp yield this year? - Causal
relationship?
Cetris Peribus - Keeping all other factors constant.
Potential Outcome/Counter factual
The effect of Panadol on your body temperature?
Salman (IBA) Chapter 1 13 / 23
Causal Inference
Economists are concerned with the causal relationships.
Finding an association between two variable might be suggestive &
not casual.
The strong correlation between chocolate consumption and the number
of nobel prices - Causal relationship??
New agriculture policy affecting the corp yield this year? - Causal
relationship?
Cetris Peribus - Keeping all other factors constant.
Potential Outcome/Counter factual
The effect of Panadol on your body temperature?
The effect of COVID on your school learning?
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Summary & Discussion
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Summary
What is Econometrics?
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Summary
What is Econometrics?
Types of data based on data generating process (Experimental vs
Observational)
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Summary
What is Econometrics?
Types of data based on data generating process (Experimental vs
Observational)
Types of data based on structure (Cross-Sectional vs Time Series)
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Summary
What is Econometrics?
Types of data based on data generating process (Experimental vs
Observational)
Types of data based on structure (Cross-Sectional vs Time Series)
Pooled Cross Section Data vs Panel Data
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Summary
What is Econometrics?
Types of data based on data generating process (Experimental vs
Observational)
Types of data based on structure (Cross-Sectional vs Time Series)
Pooled Cross Section Data vs Panel Data
Five steps of Empirical Economic Analysis
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Summary
What is Econometrics?
Types of data based on data generating process (Experimental vs
Observational)
Types of data based on structure (Cross-Sectional vs Time Series)
Pooled Cross Section Data vs Panel Data
Five steps of Empirical Economic Analysis
Random Vs Non-Random Vs Quasi-Random Data
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Summary
What is Econometrics?
Types of data based on data generating process (Experimental vs
Observational)
Types of data based on structure (Cross-Sectional vs Time Series)
Pooled Cross Section Data vs Panel Data
Five steps of Empirical Economic Analysis
Random Vs Non-Random Vs Quasi-Random Data
Causal Inference (Cetris Peribus, Potential Outcomes, Counter
factual)
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Discussion
Economic Model of Crime
y = f (x1 , x2 , x3 , x4 , x5 , x6 , x7 )
whereas;
y = HoursSpentinCriminalActivity
x1 = Wageforanhourspentincriminalactivity
x2 = Hourlywageinlegalemployement
x3 = Incomeotherthanfromcrime/employement
x4 = Probabilityofgettingcaught
x5 = Probabilityofbeingconvictedifcaught
x6 = ExpectedSentenceifconvicted
x7 = Age
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Discussion
Job Training & Worker Prodcutivity
wage = f (education, experience, training )
wage = β0 + β1 education + β2 experience + β3 training + µ
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Discussion
Data Types
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Discussion
Data Types
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Discussion
Data Types
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Discussion
Data Types
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Discussion
Data Types
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Discussion
Question
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