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st: Question about the use of ratio variables

From   hsini <>
Subject   st: Question about the use of ratio variables
Date   Mon, 09 Jul 2012 22:20:24 -0400

Dear all,

I have a question about the use of ratio variables.
Is it problematic to have a regression equation like : (Yi/population) = b0+ b1*(Xi/Yi) +b2X2 + error?

Let's say Yi is the number of innovation per region, and Xi is the number of small firm innovation. The ratio variable is a very important measure since in my theory it represents the organizational ecology of the region. I excluded regions with zero innovation. However, I am afraid of any function problem since I have Yi on the both side of the equation. I have read Bradshaw and Radbill (1987) paper discussing the use of ratio variables. It seems to me they were dealing with the ratio is generated by a third variable (Z), which is a bit different from my situation. Any suggestion?

Hsini Huang
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