<p>Imagine that I am trying to determine whether eating corn has any effect on your height. I see that in the US, total corn consumption is 20 million tons per year (made up number, all others will be made up as well) and adding up the heights of the 300 million citizens we get 500 million meters. Similar statistics for France are 4 million tons per year and 100 million meters. </p>

<p>Total American corn consumption was higher, as well as total American height.
Is this because corn has an effect on height? Or is it that both statistics are likely to be proportional to the size of the country (measured here by population)?</p>

<p>Depending on what your exact hypothesis is, you may want to filter out size effects by measuring these statistics of the national accounts as % of GDP. </p>

CC BY-SA 4.0
2019-03-31T17:45:45.837Z
2019-04-03T07:42:45.740Z
2019-04-03T07:42:45.740Z
Giskard
<p>Complementing @Giskard's answer, when you are using "trade as a perentage of gdp" or "FDI as a percentage of GPD", you are measuring the extent to which an economy is open to trade, or to inflows and outflows of international investment. Thus, "trade as a perentage of gdp" measures a country's trade openness, while increasing trade per se does not necessarily increase trade openness (for example a country may produce more and export more). Thus, the use of "trade" and "trade as a percentage of GDP" measures different economic phenomena.</p>

CC BY-SA 4.0
2019-03-31T20:35:25.170Z
2019-03-31T20:35:25.170Z
emeryville
<p>It is a Ratio variable.
And is well known in the literature that the correct interpretation of a correlation between ratio variables is debatable.</p>

<p>See <a href="https://www.jstor.org/stable/2095384?seq=1" rel="nofollow noreferrer">User's guide to ratio variables</a> and <a href="https://www.sciencedirect.com/science/article/abs/pii/S0165176516304797" rel="nofollow noreferrer">A note on using ratio variables in regression analysis</a> for more details.</p>

CC BY-SA 4.0
2020-03-06T18:33:17.110Z
Can you give a summary of the arguments against ratio variables? It would make your answer more useful as a stand alone resource.
BKay
CC BY-SA 4.0
2020-03-06T18:05:43.853Z
2020-03-06T18:05:43.853Z
Croves
<p>You can drop the 'as a perentage of GDP'? Just use the total trade and FDI  for evaluating their impact on your dependent variable ? You need not worry about whether the effect is significant (or insignificant). trade as a percentage to GDP' and 'FDI as a percentage to GDP'  are structured variables and reflect new /other variables. Given the objective of relating trade (and FDI) with Ginni coefficients (indicating inequality), use of new (structured) variables can not be justified.</p>

CC BY-SA 4.0
2020-03-06T18:32:06.817Z
This answer could be improved by elaborating on why you think you can safely do this.
BKay
CC BY-SA 4.0
2020-02-20T00:55:18.383Z
2020-03-07T03:49:15.877Z
2020-03-07T03:49:15.877Z
Subhash C. Davar
<p>In my study I will look for the relationship between the Gini coefficient and trade, FDI and other variables. However, as I was regressing it... the result turn out to be insignificant. My data that I used then were 'trade as a percentage to GDP' and 'FDI as a percentage to GDP'.</p>

<p>On the other hand, when I regress it with just the total of trade and FDI... it brings a somewhat significant result.</p>

<p>Can I drop the 'as a perentage of GDP'? And just use the total trade and FDI without that?</p>

<p>Plus I only have 16 years worth of data, though.</p>

<macroeconomics><regression>
What's the use of '% to GDP' type of variables?
ryleg96
# What's the use of '% to GDP' type of variables?

(Asked by: username_0 on 2019-03-31)

In my study I will look for the relationship between the Gini coefficient and trade, FDI and other variables. However, as I was regressing it... the result turn out to be insignificant. My data that I used then were 'trade as a percentage to GDP' and 'FDI as a percentage to GDP'.

On the other hand, when I regress it with just the total of trade and FDI... it brings a somewhat significant result.

Can I drop the 'as a perentage of GDP'? And just use the total trade and FDI without that?

Plus I only have 16 years worth of data, though.

**Tags:** macroeconomics, regression


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## 4 answers

### Answer by username_1 on 2019-03-31. Score: 5

Imagine that I am trying to determine whether eating corn has any effect on your height. I see that in the US, total corn consumption is 20 million tons per year (made up number, all others will be made up as well) and adding up the heights of the 300 million citizens we get 500 million meters. Similar statistics for France are 4 million tons per year and 100 million meters.

Total American corn consumption was higher, as well as total American height.
Is this because corn has an effect on height? Or is it that both statistics are likely to be proportional to the size of the country (measured here by population)?

Depending on what your exact hypothesis is, you may want to filter out size effects by measuring these statistics of the national accounts as % of GDP.


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### Answer by username_2 on 2019-03-31. Score: 2

Complementing @username_1's answer, when you are using "trade as a perentage of gdp" or "FDI as a percentage of GPD", you are measuring the extent to which an economy is open to trade, or to inflows and outflows of international investment. Thus, "trade as a perentage of gdp" measures a country's trade openness, while increasing trade per se does not necessarily increase trade openness (for example a country may produce more and export more). Thus, the use of "trade" and "trade as a percentage of GDP" measures different economic phenomena.


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### Answer by username_3 on 2020-03-06. Score: 1

It is a Ratio variable.
And is well known in the literature that the correct interpretation of a correlation between ratio variables is debatable.

See [User's guide to ratio variables](https://www.jstor.org/stable/2095384?seq=1) and [A note on using ratio variables in regression analysis](https://www.sciencedirect.com/science/article/abs/pii/S0165176516304797) for more details.

> **Comments:**
> **username_4**: Can you give a summary of the arguments against ratio variables? It would make your answer more useful as a stand alone resource.  

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### Answer by username_5 on 2020-02-20. Score: 0

You can drop the 'as a perentage of GDP'? Just use the total trade and FDI for evaluating their impact on your dependent variable ? You need not worry about whether the effect is significant (or insignificant). trade as a percentage to GDP' and 'FDI as a percentage to GDP' are structured variables and reflect new /other variables. Given the objective of relating trade (and FDI) with Ginni coefficients (indicating inequality), use of new (structured) variables can not be justified.

> **Comments:**
> **username_4**: This answer could be improved by elaborating on why you think you can safely do this.  

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