Scandinavian Working Papers in Economics

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

No 326: 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: Jönköping International Business School, and Linnaeus University, Postal: Jönköping International Business School, , Box 1026, , 55 111 Sweden
Therese Norman: Jönköping International Business School, Postal: Jönköping International Business School, , Box 1026, , 55 111 Sweden
Sam Tavassoli: Blekinge Institute of Technology, Postal: Blekinge Institute of Technology, , School of Management, , 371 79 Karlskrona, , Sweden

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

JEL-codes: C51; C54; I32

16 pages, October 11, 2013

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