The document outlines the fundamentals of developing a theoretical framework and hypotheses in the context of deductive research within economics. Key components discussed include the definition of variables (dependent, independent, moderating, and mediating), the importance of literature reviews in hypothesis development, and examples of testable hypotheses. Additionally, it emphasizes the need for a structured approach to building theoretical models that guide empirical research.

1. ,
Lecture 5
Theoretical Framework and
Hypothesis Development
Research Methods in Economics (ECON-438)
MSc Economics, 4th
Dr. Muhammad Ayyoub
Assistant Professor
Department of Economics
University of Sahiwal, Pakistan
August 16, 2020
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 1 / 33

2. Overview
1 Recap and learning objectives
2 Theoretical framework
3 Variables
4 Hypotheses development
5 Conclusion
6 Suggested readings
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 2 / 33

3. Recap
• Lecture 4(A) of this module was primarily focused
on:
discussing the functions of a literature review.
writing a literature review on any given topic and
documenting the references in the prescribed
manner.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 3 / 33

4. Learning Objectives
After completing Lecture 5(A), the students should be
able to:
• discuss the need for a theoretical framework in
deductive research.
• describe four main types of variables and
identify and label variables associated with any
given situation.
• develop a theoretical framework that includes all
the relevant components.
• develop a set of hypotheses to be tested.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 4 / 33

5. M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 5 / 33

6. Theoretical Framework
A theoretical framework:
• is the foundation of “hypothetico deductive”
research as it is the basis of the hypotheses that
is to be developed.
• involves the identification of a network of
relationships among variables considered
important to the problem.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 6 / 33

7. Theoretical Framework (Cont’d)
A theoretical framework:
• represents the researcher(s)’ beliefs on how
certain phenomena (or variables or concepts)
are related to each other (a model) and an
explanation of why the researcher believes that
these variables are associated with each other
(a theory).
Thus, the Theoretcal Framework must highlight TWO
components: the “model” and the “theory”.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 7 / 33

8. Theoretical Framework (Cont’d)
• The development of a theoretical framework is
crucial in deductive, theory testing, causal
research.
• BUT not in exploratory or descriptive research
where one does not develop a theoretical
framework to develop and test hypotheses.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 8 / 33

9. The Process of Building a
Theoretical Framework
It includes:
• Introducing definitions of the concepts or
variables in the model.
• Developing a conceptual model that provides a
descriptive representation of the theory.
• Coming up with a theory that provides an
explanation for relationships between the
variables in the model.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 9 / 33

10. Variables
• A variable is anything that can take on differing
or varying values.
• The values can differ at various times for the
same object or person, or at the same time for
different objects or persons.
• Examples of variables are production units,
absenteeism, and motivation.
• Variables can be discrete (e.g., male/female) or
continuous (e.g., the age of an individual).
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 10 / 33

11. Variables and Model
Life Cycle Hypothesis
Ct =
1
T
Y1
t + N − 1)Y
1e
+ At
• Ct is consumption in time-period t.
• The term in brackets is expected lifetime
resources, which consists of:
Y1
t = the individual’s labor income in the current
time-period t.
Y
1e
= the average annual labor income expected
over the future (N − 1) years during which the
individual plans to work.
A = the value of presently held assets.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 11 / 33

12. Examples of Variables
CA
2020 = YA
2020 + AA
2020
CB
2020 = YB
2020 + AB
2020
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 12 / 33

13. Variables (Cont’d)
Four main types of variables are:
• The dependent variable (also known as the
criterion variable).
• The independent variable (also known as the
predictor variable).
• The moderating variable.
• The mediating variable.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 13 / 33

14. Variables (Cont’d)
Dependent Variable
• The dependent variable is the variable of
primary interest to the researcher.
• It is the main variable that lends itself for
investigation as a viable factor.
• It is possible to have more than one dependent
variable in a study.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 14 / 33

15. Variables (Cont’d)
Independent Variable
• An independent variable is one that influences
the dependent variable in either a positive or
negative way.
• To establish that a change in the independent
variable causes a change in the dependent
variable, all four of the conditions (see next slide)
should be met.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 15 / 33

16. Variables (Cont’d)
Four Conditions
• The IV and the DV should covary.
• The IV (the presumed causal factor) should
precede the DV. There must be a time sequence
in which the two occur: the cause must occur
before the effect.
• No other factor should be a possible cause of the
change in the DV. The researcher should control
for the effects of other variables.
• A logical explanation (a theory) is needed and it
must explain why the IV affects the DV.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 16 / 33

17. Variables (Cont’d)
Moderating Variable
• The moderating variable is one that has a strong
contingent effect on the IV–DV relationship.
• The presence of a third variable (i.e., the
moderating variable) modifies the original
relationship between the IV and the DV.
• The variable that moderates the relationship is
known as the moderating variable.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 17 / 33

18. Variables (Cont’d)
Mediating Variable
• A mediating variable (or intervening variable) is
one that surfaces between the time the IVs start
operating to influence the DV and the time their
impact is felt on it.
• There is thus a temporal quality or time
dimension to the mediating variable.
• In other words, bringing a mediating variable into
play helps the researcher to model a process.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 18 / 33

19. How Theory is Generated
The relationship between literature review, theoretical framework
and hypotheses development
• The literature review identifies the variables that
might be important, as determined by previous
research findings.
• The theoretical framework is the foundation on
which the entire deductive research project is
based.
• The literature review provides a solid foundation
and, hence, sets the stage for developing a
good theoretical framework.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 19 / 33

20. How Theory is Generated
The relationship between literature review, theoretical framework
and hypotheses development
• The literature review provides a solid foundation
and, hence, sets the stage for developing a
good theoretical framework.
• The theoretical framework in turn provides the
logical base for developing testable hypotheses.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 20 / 33

21. The Components of the
Theoretical Framework
1. The variables considered relevant to the study
should be clearly defined.
2. A conceptual model1
that describes the
relationships between the variables in the model
should be given.
3. There should be a clear explanation of why we
expect these relationships to exist.
1
A conceptual model helps you to structure your discussion of the
literature. It describes your ideas about how the concepts (variables) in your
model are related to each other.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 21 / 33

22. Hypotheses Development
• What after the identification of the important
variables in a situation and establishing the
relationships among them through logical
reasoning in the theoretical framework?
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 22 / 33

23. Hypotheses Development
(Cont’d)
• This is the time to test whether the relationships
that have been theorized do actually hold true.
• By testing these relationships scientifically
through appropriate statistical analyses, the
researcher is able to obtain reliable information
on what kinds of relationships exist among the
variables operating in the problem situation.
• The results of these tests offer some clues as to
what could be changed in the situation to solve
the problem.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 23 / 33

24. Hypotheses Development
(Cont’d)
• Formulating such testable statements is called
hypothesis development.
• A hypothesis can be defined as a tentative, yet
testable, statement, which predicts what you
expect to find in your empirical data.
• Hypotheses are derived from the theory on
which your conceptual model is based and are
often relational in nature.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 24 / 33

25. Hypotheses Development
(Cont’d)
• The hypothetico-deductive method requires that
hypotheses are falsifiable: they must be written in
such a way that other researchers can show
them to be false.
• For this reason, hypotheses are sometimes
accompanied by null hypotheses.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 25 / 33

26. Hypotheses Development
(Cont’d)
• A null hypothesis (H0) is a hypothesis set up to be
rejected in order to support an alternate
hypothesis (HA).
• The alternate hypothesis, which is the opposite of
the null, is a statement expressing a relationship
between two variables or indicating differences
between groups.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 26 / 33

27. Examples of Hypotheses
If–then statements
• Young women will be more likely to express
dissatisfaction with their body weight, when they
are more frequently exposed to images of thin
models in advertisements.
• If young women are more frequently exposed to
images of thin models in advertisements, then
they will be more likely to express dissatisfaction
with their body weight.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 27 / 33

28. Examples of Hypotheses
Directional hypotheses2
• The greater the stress experienced in the job, the
lower the job satisfaction of employees.
• Women are more motivated than men.
2
If the direction of the relationship between the variables
(positive/negative) is indicated in the testable statements.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 28 / 33

29. Examples of Hypotheses
Nondirectional hypotheses3
• There is a difference between the work ethic
values of American and Asian employees.
• Women are more motivated than men.
3
The testable statements that do postulate a relationship or difference,
but offer no indication of the direction of these relationships or differences.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 29 / 33

30. Summary of Today’s Session
• In today’s session, I have tried to explain the
fundamentals and necessary components of a
“Theoretical Framework” and “Hypotheses
Testing”.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 30 / 33

31. Suggested Reading Material
Chapter 5: Uma Sekaran & Roger Bougie (7th edition)
Research Methods for Business: A Skill-Building Approach
Wiley
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 31 / 33

32. Questions/Queries
You can send your questions at:
m.ayyoub@uosahiwal.edu.pk
Your queries would be entertained
within one working day.
You may also visit http://muhammadayyoub.com/
research-methods-in-economics-econ-438/# for
more material on ECON-438 course.
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 32 / 33

33. Thank you for your attention!
M. Ayyoub (UoS, PK) Theory & Hypotheses August 16, 2020 33 / 33