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I have the following estimation of a two-way fixed effects model:

$FDI=\beta_0+ \beta_1GDP_{gr}+ \beta_2Infl+ \beta_3Realinc + \beta_4Open+ \beta_5Reserve+ \beta_6Pol_r + \beta_7Infr+ \beta_8Nat_{re}+ \beta_9SACUit+\mu_i+\gamma_i+\epsilon_{it}$

Where FDI is measured as net inflows of foreign direct investments (% of GDP), Open is the openness of a country measured as $\frac{(imports+exports)}{GDP}$, and $GDP_{gr}$ is GDP growth (annual %).

How do I interpret the magnitude of the coefficient of the explanatory variabel Open? How do I interpret the magnitude of the coefficient of the explanatory variabel $GDP_{gr}$?

I get the following significant coefficients: Open 24.20 and $GDP_{gr}$ 0.209 Are they reasonably?

Eric Peterson
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Anna
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1 Answers1

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The coefficient on $GDP_{gr}$ means: if $GDP_{gr}$ increases by 1 percentage point (not percent), then FDI increases by .209 percentage points. That seems reasonable.

The coefficient of $Open$: it's not in percent, so this means if it increases by 100 percentage points (by 1), then FDI increases by 24.2 percentage points. This is almost the same magnitude as growth. It is just weird that you have growth in percentage points, but not $Open$. You could multiply $Open$ with 100 to make it consistent.

Nameless
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