Dear Friends,
To find the non-linear relationship between dependent and independent variables, can I use the squared variables (X2) along with original variable (X), as explanatory variable in the panel data analysis.
Y = a +b1X1+ b2X22 +b3X3 ---------+bnXn .
Thanks in advance.
Dear Muruganandan S ,
The use of polynomials is a common strategy to identifying multiple relationships between a given independent variable (e.g., X) and the response variable (i.e., Y).
It is important to keep always the lower order explanatory variables when you use higher order ones. For example, if you use X2 you must use X. Likewise, if you use X3, you must use X2 and X.
Hope this helps. Thanks, Nick
Dear Nick
Thank you for your immediate reply. You have given clear explanation also. Thank you
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