Scandinavian Working Papers in Economics

Working Papers,
Blekinge Institute of Technology, Department of Industrial Economics

No 2013/03: In the quest for economic significance: Assessing variable importance through mean value decomposition

Thomas Holgersson (), Therese Norman and Sam Tavassoli ()
Additional contact information
Thomas Holgersson: CSIR, Blekinge Inst of Technology, Postal: Jönköping International Business School, Box 1026 , 55 111 Jönköping , Sweden, Linnæus University , 351 95 Växjö , Sweden
Therese Norman: CSIR, Blekinge Inst of Technology, Postal: Jönköping International Business School, Box 1026, 55 111 Sweden
Sam Tavassoli: CSIR, Blekinge Inst of Technology, Postal: CSIR, School of Management, Blekinge Inst of Technology, 371 79 Karlskrona, Sweden

Abstract: Economic significance is frequently assessed through statistical hypothesis testing, which however, does not always correspond to 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

JEL-codes: C51; C54; I32

13 pages, December 3, 2013

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