Dear community,
I estimate a gravity model with ppml and I want to include a regressor that accounts for some sort of factor endowment difference between source and host country. I chose to use a Human Capital Index (min. 1, max. unlimited but maximum in data set is 4.53). My question is now: Would you just add the difference between the HCI value for source country - HCI value for host country? Or would you recommend another form? Would you log those index values as I've done it for other regressors such as GDP? I would have thought to not log this variable due to the index form, but I'm struggling a bit at the moment. I appreciate any advice!
Best
Noemi
I estimate a gravity model with ppml and I want to include a regressor that accounts for some sort of factor endowment difference between source and host country. I chose to use a Human Capital Index (min. 1, max. unlimited but maximum in data set is 4.53). My question is now: Would you just add the difference between the HCI value for source country - HCI value for host country? Or would you recommend another form? Would you log those index values as I've done it for other regressors such as GDP? I would have thought to not log this variable due to the index form, but I'm struggling a bit at the moment. I appreciate any advice!
Best
Noemi
