USING DUMMY VARIABLES

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USING DUMMY VARIABLES
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OUTLINE

• Types of relationship spurious, enhancement,
  specification (interactive)
• Creating dummy variables
• Using dummy variables
• In enhancement relationships (change of intercept
  but not of slope)
• In interactive relationships (change of slope as
  well as of intercept)
• Illustration Religion, Wealth, and Politics

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TYPES OF RELATIONSHIP

• Spurious (relationship between Y and X1 vanishes
  in presence of X2)
• Enhancement (inclusion of X2 yields higher R2
  than equation with just X1i.e., affects strength
  of relationship)
• Specification--or interaction (inclusion of X2
  affects form of relationship between Y and X1)

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CREATING DUMMY VARIABLES

• Transform categorical variables into
  interval-scale variables
• Coding convention 0, 1
• Binary form for each permutation e.g., North (0,
  1), South (0, 1), East (0, 1), West (0, 1)

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ILLUSTRATION 1 RELIGION, WEALTH, AND
POLITICS Y support for Democratic Party
() X1 per capita wealth X2 predominant
religion (0 non-Catholic, 1 Catholic 0
non-Jewish, 1 Jewish 0 non-Protestant, 1
Protestant)
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ILLUSTRATION 2 GOVERNMENTAL PERFORMANCE AND
POLITICAL REGIMES
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PROBLEMS AND QUESTIONS

• Disenchantment with democracy in Latin
  Americaare popular judgments fair?
• 1. How to assess democratic performance in Latin
  America?
• 2. What comparison group for Latin America?
• 3. How to measure democratic vs. nondemocratic
  performance across comparison group?

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BASIC HYPOTHESES

• H1 The greater the prevalence of democratic
  rule, the greater the provision of material
  benefits.
• H2 The greater the prevalence of undemocratic
  (authoritarian) rule, the greater the provision
  of material benefits.
• H3 The prevalence of democratic or undemocratic
  rule bears no systematic relationship to the
  relative provision of material benefits.

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DATA AND VARIABLES

• UniverseMiddle income countries55 in
  lower-middle, 41 in upper-middle, N96
• Time frame1990-2004
• Units of analysiscountry-years
• Dependent variables
• Annual GDP growth rate ()
• Infant Mortality (per 1,000)
• Primary School Enrollment ()

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INDEPENDENT VARIABLES

• Region _at_ World Bank (0, 1)
• Democracy _at_ Freedom House (0, 1)
• Level of democracy _at_ Smith, Ziegler
• Liberal (0, 1)
• Illiberal (0, 1)
• Semidemocratic (0, 1)
• Nondemocratic (0, 0)
• Note Use of dummy variables

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CONTROL VARIABLES

• Wealth
• Upper/lower income bracket (0, 1)
• GDP per capita (1990, 2000)
• Structure
• Manufacturing as GDP (1990, 2000)

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FORMAT FOR REGRESSIONS

• Y a b1Wealth b2Structure
• biRegioni bkRegionk
• Y a b1Wealth b2 Structure
• b3 Democracy

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POLITICAL DETERMINANTS

• __Growth__ __Mortality__
  __Schooling__
• (1,088) (277)
  (369)
• Democracy (0, 1) .4206 -10.1158
  6.0896
• Nondemocracy (0, 0) -----
  ---- ----
• Constant 3.9562 84.2483
  77.0707
• R2 .0822 .5336
  .1758
• Significant at .001 level or better.

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DEMOCRACY BY REGION

• __ Growth__ __ Mortality__
  __ Schooling__
• (1,032) (266)
  (346)
• Latin American
• Caribbean
• Democracy (0, 1) .2373 -11.8388
  8.5104
• Other Democracy (0, 1) .3569 -10.4353
  4.5804
• Nondemocracy (0, 0) ---- ----
  ----
• Constant 3.9008 83.8488
  76.6599
• R2 .0690 .5336
  .2027
• Significant at .01 level or better.

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IMPLICATIONS

• 1. Democratic governments in Latin America and
  elsewhere have performed at least as well as
  authoritarian regimes in promoting economic
  growth.
• 2. Democratic governments in Latin America and
  elsewhere have consistently outperformed
  authoritarian regimes with regard to infant
  mortality and school attendance.
• 3. The deeper the democracy, the greater the
  provision of fundamental social benefits. not
  shown here

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AND CAVEATS

• Analysis of variance around the mean does not
  resolve legitimate public concern about the level
  of the mean
• Average growth is 3.2 not 8.2.
• Mean infant mortality is 30 per 1,000 not 10.
• Average primary school attendance is 89 instead
  of 99.
• And so on.