Econistics | Control Variable Theory for Economics
This effort will provide you some guidance in selecting appropriate control variables.
Moderator model, growth theory, equilibrium model
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Finding Control Variables From Scratch

16 Nov Finding Control Variables From Scratch

One of the common problem with starting new student papers, thesis and research papers is that, the selection of topic may guide in selection of the main independent variable and/or the dependent variable but selection of other controlling variables are haphazard, without have thought process leading to lack of relevancy with the topic / paper under discussion.

This activity explores the various means to find controlling variables for the study using one example and their variants.

Setting foundation

First of all the selection of research topic or research objectives, identify what type of dependent variable is selected[1], and in some cases single or multiple independent variable are also identified from it[2].

Consider an example of determinants of social development with special prospect of FDI. Here first discussion in the study will be regarding specific instrument as proxy for social development, it can be poverty, income inequality, HDI, infant mortality rate etc. While one of the independent variable is fixed.

Finding chain of theories

Before exploring for the possible controlling variables, one must look for any specific chain end from can be pulled to find other links. Here the most common variable which is causal factor of all variables which can be dependent variable i.e. GDP (Sala-i-Martin, 1997).

Now the strategy of selecting control variable will work when the dependent variable is GDP or not and when GDP is specifically not the independent variable (for the case of strategy 1 and 2). Few of the following strategies can be used

  1. Growth Theory Channel
  2. Disaggregation Approach
  3. Moderation Approach within important IV’s
  4. Indexation Approach
  5. Demand and Supply Approach
  6. Using qualitative indicators

[1] The case where you are studying determinants of some particular variable

[2] Where out of all possible variables some specific determinant is targeted.

Participation and suggestions are welcomed 

Reference

Sala-i-Martin, X. X. (1997). I just ran four million regressions (No. w6252). National Bureau of Economic Research.

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