The role of grounded theory in developing economic theory

Grounded theory is examined as a means of undertaking economics research that aims at theoretical development and generalization rather than testing established theories. Grounded theory encompasses a set of procedures for undertaking and analysing case studies--qualitative and quantitative--in a systematic and comparative manner. These procedures are set out, and illustrations of theory developed in close connection with business decision-making and industry competition are drawn from P.W.S. Andrews' post-Marshallian industry studies, Cyert and March's Behavioral Theory of the Firm , and Sutton's analysis of market structures. Conclusions are drawn out regarding the nature of the relationship between testing established theory and making novel knowledge claims, the nature of knowledge held by those involved in economic phenomena, the nature of contexts of discovery and verification, and processes involved in making inferences.