I estimates export supply function and taken one of variable domestic demand pressure, I assume domestic demand pressure inversely related to export supply. But value of coefficient of demand pressure is positive then how to interpret it. Please help
The sign of a regression coefficient tells you whether there is a positive or negative correlation between each independent variable and the dependent variable. A positive coefficient indicates that as the value of the independent variable increases, the mean of the dependent variable also tends to increase. A negative coefficient suggests that as the independent variable increases, the dependent variable tends to decrease.
I agree with Rede@ dilipkumar comments above. In any regression analysis, the coefficient estimate signs tell a lot abound interpretation. If the dependent and independent variables are expressed in logarithmic form, you describe the coefficients in terms of elasticities...!
Thank you! Hopes this will help you
Dear Jitendra,
A lot of things can go wrong. First is how you measure the variables. You should try net export and excess demand? And remember that the exchange rate, foreign interest rates, and foreign income might also be relevant. Also, are you doing one country vs. the rest of the world (ROW). And what type of equation you are trying to fit, single, system, linear, non-linear? How large is your sample? You can see a lot of different things can happen to your model.
Dear Mr. Suman,
Before I can decisively comment on the unexpected (!) positive sign of the coefficient of the domestic demand variable that you got, I would like to know what other explanatory variables you had in your model; and how you measured the variables. You also have not mentioned if the estimated positive coefficient is statistically significant or not. If not statistically significant, the coefficient can be interpreted as being zero and, as such, does not influence export. Ceteris paribus, an increase in domestic demand may lead to increased supply of domestic output including the supply of the export items. You may end up with a positive sign! @
As others have already said, it is important to know what your other variables are and how they are measured. However, I do not understand why (or how) domestic demand pressure (how measured) should affect export supply of the good. Rather relative prices should account for that. (in other words domestic demand pressure truly an independent variable if the rest of the model is specified properly?). Without knowing the specification, some factors you might want to consider are whether some of your independent variables are a) truly independent and b) whether they may be correlated? It is also possible that you suffer from an identification problem.
Methodologically, when constructing a theory you should make sure that theory supports that your independent variables are truly causal and that they are independent of each other. Generally we do not put "demand" variables in supply functions but look at prices to pick that up.
I noticed that I did not answer your question precisely. You asked for an interpretation of a coefficient in a regression that has the opposite sign of that predicted by your theory.
There are 2 possibilities. The first assumes that you are not willing to reject your theory. In that case, you need to look at your specification and see if you have problems as I listed above. In that case you need to correct your specification. Of course this assumes that the result is significant. If it is not significant, you can attribute it to random chance. The other possibility is that you believe that your specification is fine and doesn't have problems as I listed (or others). In that case, you should reject your theory since it doesn't conform to the evidence. Once you have rejected your original theory, you should try to come up with an alternative theory (supported by 1st principles) that can explain your data.
- Badges
- Science topic