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CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology KTH/CESIS Working Paper Series in Economics and Institutions of Innovation

No 326:
In the quest for economic significance: Assessing variable importance through mean value decomposition

Thomas Holgersson (), Therese Norman () and Sam Tavassoli ()

Abstract: Economic significance is frequently assessed through statistical hypothesis testing. This habitual use is, however, usually not matching with the implicit economical questions being addressed. In this paper we propose using mean value decomposition to assess economic significance. Unlike most previously suggested methods the proposed one is intuitive and simple to conduct. The technique is demonstrated and contrasted with hypothesis tests by an empirical example involving the income of Mexican children, which shows that the two inference approaches provide different and supplementary pieces of information.

Keywords: Conditioning; Economic significance; Regression analysis; Mean Value Decomposition; Goodness-of-Fit; (follow links to similar papers)

JEL-Codes: C51; C54; I32; (follow links to similar papers)

16 pages, October 11, 2013

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