There exist two possible methods for the investigation, the inductive inference and deductive inference. The inductive inference collects empirical observations and infers the general conclusion from them. Although it is very useful for the practical purposes, the inductive inference cannot arrive to the definite conclusion. You observe as many white swans as you like in the northern hemisphere, but cannot conclude that swan is white, since you cannot exclude the possibility to see black swans in the southern hemisphere. You can collect all the cases in the past, but cannot conclude definitely, since you cannot know the possible cases in the future. To arrive at the definite conclusion, therefore, we have to rely on the deductive inference. It starts with some assumptions and derive logical conclusions from them. Some assumptions may be derived from inductive inference founded on the empirical observations while other assumptions are made merely as the simplifying assumptions. As far as the assumptions are admitted, and the logical operations are correct, the derived conclusion must be accepted.
KeywordsInductive Inference Deductive Inference Capital Labor Ratio Black Swan International Trade Theory
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