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st: Re: Question about ln-linear models

From   daniel klein <>
Subject   st: Re: Question about ln-linear models
Date   Fri, 2 Sep 2011 16:19:04 +0200

> My dependent variable is the natural logarithm of the trade between country i and country j and the dummy variable indicates whether the two trading countries share the same origin of the legal system (same origin =1). I have estimated the model using OLS. The coefficient of the dummy variable is 0.85. So, my interpretation is that having the same origin of the legal system, all else being equal, would lead to 85% increase in trade. I am wondering however if this is correct. A friend of mine suggested that I have to read this as exp(0.85)-1)*100%.

In addition, please note that the interpretation "rule",  b*100 is
just an approximation, which is only valid for small values of b.

0.15 * 100 % = 15 %
(exp(0.15)  - 1)* 100 % = 16.18 %

Here the approximation works quite well. However taking your 0.85 the
example reads

0.85 * 100 = 85 %
(exp(0.85)-1)* 100 % = 133.96 %

Here the approximation becomes very poor.


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