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Re: st: Question about the use of ratio variables


From   Fernando Rios Avila <f.rios.a@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Question about the use of ratio variables
Date   Mon, 9 Jul 2012 22:43:43 -0400

I think your problem is similar to the division bias issue in Labor economics.
I suggest you to look for the following paper:

The Relationship between Wages and Weekly Hours of Work: The Role of
Division Bias

George J. Borjas
The Journal of Human Resources
Vol. 15, No. 3 (Summer, 1980), pp. 409-423

It discusses the problem, consequences and some solutions.

Fernando.

On Mon, Jul 9, 2012 at 10:20 PM, hsini <hsini92@gmail.com> wrote:
>
> 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?
>
>
> Sincerely,
> Hsini Huang
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