Steven Gorlé
>
>
>
> ----- Original Message -----
> From: "Jason Yackee" <[email protected]>
> To: <[email protected]>
> Sent: Thursday, January 25, 2007 5:02 AM
> Subject: st: ok to include the denominator of ratio dep var as an
> independent var too?
>
>
>> Dear all,
>>
>> I just received this question at a presentation of a paper and I wasn’t
>> sure how to answer it.
>>
>> I have a panel data set, and a model that is of the general form: (y/x) =
>> a + b + c+…+ x. My dependent variable (y/x) is a ratio of the total
>> dollar amount of foreign capital inflows that a host country receives in
>> a given year as a ratio of the host country’s GDP in that same year
>> (annual capital inflows = y, gdp = x in the model above).
>>
>> This ratio is called the “penetration ratio” in the literature. I also
>> included GDP on the right-hand side of the equation as a control for each
>> country’s overall economic size. The GDP variable was a significant,
>> negative predictor of the penetration ratio. Larger GDP → Less
>> Penetration.
>>
>> The questioner said that it was improper to have “GDP” on “both sides of
>> the equation”, and that it was sufficient to have a model of the form y =
>> a + b + c +…+ x, where “x” is GDP is “y” is simply the dollar value of
>> foreign capital inflows in absolute, not ratio, form. He couldn't explain
>> why. I couldn't explain why not.
>>
>> I re-ran the model in the form the questioner suggested, and the results
>> are overall quite different for the theoretically interesting independent
>> variables. But my own sense is still that the questioner is wrong, and
>> that my original model was not necessarily improperly specified. But I
>> don’t have the mastery of statistics to justify my “sense”.
>>
>> Would some kind soul be able to weigh in before my next presentation?
>>
>> Jason Webb Yackee, J.D.
>> Fellow, Gould School of Law
>> University of Southern California
>> [email protected]
>> Cell: 919-358-3040
>>
>>
>> *
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>> * http://www.ats.ucla.edu/stat/stata/
>>
>>
>
*
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