Machine Learning for Economics Research: When What and How?
It provides a curated review for economists and researchers on when, what, and how ML tools are used in economics, but it is incremental as it synthesizes existing literature without new empirical results.
This paper reviews the use of machine learning in economics research, finding that ML is applied to handle nontraditional data and nonlinearity, with deep learning for nontraditional data and ensemble methods for traditional datasets, and it is becoming essential due to increasing data complexity.
This article provides a curated review of selected papers published in prominent economics journals that use machine learning (ML) tools for research and policy analysis. The review focuses on three key questions: (1) when ML is used in economics, (2) what ML models are commonly preferred, and (3) how they are used for economic applications. The review highlights that ML is particularly used to process nontraditional and unstructured data, capture strong nonlinearity, and improve prediction accuracy. Deep learning models are suitable for nontraditional data, whereas ensemble learning models are preferred for traditional datasets. While traditional econometric models may suffice for analyzing low-complexity data, the increasing complexity of economic data due to rapid digitalization and the growing literature suggests that ML is becoming an essential addition to the econometrician's toolbox.