Econometrics – An Overview

The term economy refers to the field of commerce or the operations associated with economic activity. An economy is a particular place of the organization, production, distribution and exchange of goods and services, by other agents involved in its production, exchange and consumption. In simple terms, it is considered ‘a political domain which focus on the practices, discourses, goods, services and social policies related to the organization, production, distribution, exchange and consumption of productive and potential resources.’ It is used to refer to the entire process of production, supply, distribution and consumption of economic goods and services, by various agents, in the market place.


A state of full employment, economic growth, and standard of living is considered to be an economy. All these indicators, over a period of time, determine the nature of the economy and the level of economic activity. A high-growth economy enjoys good business cycles, high investment levels, durable goods, industrial production and employment rates. Low levels of government spending, inflation, financial risks and trade balances are some of the other indicators of economy. Economic growth measures the level of production and consumption of goods and service produced in a country.

The factors that contribute to the economic activity include population size and composition, technology, geography, product markets, economic structure, external conditions, natural resources and international trade. Natural resources include petroleum, coal, steel, agricultural production and animal breeding. External conditions include currency exchange rate, foreign direct investment, interest rates, fiscal policy, exchange rate valuation, tariffs and nontariff barriers. International trade refers to the movement of products between countries.

Economics deals with attempts to understand the concepts of production, distribution, consumption, investment, and motivation. The analysis of concepts in economics seeks to provide economic decisions based on the facts to minimize distortions in the process of production, distribution, consumption and technology. The study of economics is further subdivided into micro and macro economics. Micro economics concerns the phenomena of individual economic agents and the decisions they make on the marketplaces.

Microeconomics is concerned with micro quantities and decisions of economic agents involved. On the other hand, macroeconomics concerns itself with macro quantities of goods and services of an overall scale. The study of economies on a global scale combines economic theory and practice with a wide range of data. This information is used to analyze policies that affect the supply, utilization, productivity and distribution of scarce resources. Economic activity in a country is studied by looking at national income, expenditure, output, structure of production and employment.

Econometrics is the study of how market prices and production processes evolve through time. It studies the relationships among economic agents within a market system. Production, consumption, exchange rate, financing and investment decisions are analyzed to determine where there is a demand for goods and services and where the opportunities for growth exist. This also determines the nature of the economy, the nature of its resources and the role of human actors in the economy. The analysis of historical price and production factors and the evolution of prices and production processes through time is essential for the study of economy.