Statistics in Economics:

  Economics is the study of various factors that affect both nations and individuals. Statistics is one of the most important topics that governs modern economic theory and economic models, so much so that it has its own sub branch called ‘Economic Statistics’ or ‘Econometrics’. Econometrics is a subset of applied statistics that concerns itself with the collection, analysis, and processing of economic data. Various theories and principles have been developed by economists based on the deductive logic of production, distribution, trade, demand, price cycles, tax, etc. These theories are only of academic importance unless they are put through an empirical examination. Such theories can be compared to real-life scenarios using statistical analysis.

Statistics is widely used by economists to analyze various social and economic phenomena and hence develop appropriate models that help us understand the economy better. It helps derive relationships between variables like price and quantity, money supply and price, consumer spending and GDP etc. Today, statistics has become a mainstay in most if not all economics and business-related courses.

A lot of statistical concepts such as correlation, regression, mean, and variance help economists build intricate economic models that aim to describe the complex economic environment that we live in. A lot of economic indicators such as the GDP, Inflation Index, Interest and Repo rates, all have their roots strongly embedded in the field of statistics. Statistical data and powerful statistical techniques of probability, expectations, sampling, significance test, estimation theory, forecasting, etc. play an important role in all such calculations. It is impossible to run an economy smoothly without extensive use of statistics. For example, economic planning; an important aspect of any country’s prosperity relies heavily on the use and application of statistics and statistical methods. In India, the five-year plans and the annual budget extensively use statistical tools to end up on a result that would be most beneficial to the economy and hence the people of the country. Furthermore, stock markets such as the NYSE, BSE, LSE etc. would have been able to reach the highs that they are experiencing now without thorough and comprehensive use of statistics. All stock market indices and individual stocks derive their value from demand and supply, the value is computed by using statistical methods such as Beta index, Relative Strength Index and Simple Moving average.

The application of statistics allows businesses and economies to run efficiently, by employing complex methods like predictive analysis, regression techniques, correlation etc. to break down complex data into easily interpretable numbers. It helps organizations better evaluate the probability of occurrence of future events and hence, allows leaders to make better, more informed decisions pertaining to the course of action that an organization should pursue in the future.

Statistics is present in any field that involves the analysis and manipulation of data. The future of our world is highly dependent on how we can collect and analyze data in a meaningful and efficient way, statistics is at the heart of this transformation that we are going through. As the world around us evolves and we move into the age of AI, deep learning, big data, and blockchain it is imperative that statistics will play a vital role in the advancement of the world economies and the human race as a whole. 

~ Gunavanth Mahendra