A more reliable approach towards the methodology of economic analysis was introduced by the “German Historical School of Economists” in the form of inductive method. The German school was represented by famous economists like Roscher, Hilbrand and Frederick. They were of the view that deductive method leads to many misleading conclusions conducted on the basis of incorrect assumptions. The inductive method is also known as empirical method. According to this method we proceed from a particular state of affairs to general principles. It means that general principles are derived from the observed facts. In this method facts and figures of a particular nature of problem are collected and arranged in a systematic way from which the general principles are drawn. This method uses three tools for economic generalization i.e. experimentation, observation and statistical methods.
Steps Involved in Inductive Method
- Observation of the issue
- Formation of hypothesis
- Generalization and
Advantages of Inductive Method
Following are the merits of inductive method
- It is based on facts.
- It utilizes statistical techniques and hence is a reliable method.
- It is useful in predictions and future investigations.
- It is universally applicable.
Disadvantages of Inductive Method
Following are the demerits
- It is expensive
- It is time consuming
- Its generalization maybe misleading if inaccurate data is used
- It is quite difficult and technical