Primary aim of any research is to find out the possible associations among a group of variables, which are generally found by observing any phenomenon in socio-economic or industrial setting. Subsequent to formulation of a mathematical model, which can apparently describe the phenomenon in the most realistic way, it is required to test the model using real world data, which will correspond to the variables being used in that model. However, it is not always possible for a researcher to collect all the data in quantitative or measurable form, and in order to get past that issue, the variables can be redefined in terms of measurement.

Suppose, a researcher wants to evaluate a particular economic policy in a particular context and that policy is so multidimensional, that it is influencing a huge number of economic and social factors, most of which are in a non-measurable form. Moreover, it is not always possible and feasible to capture all of those variables in the boundary of a single study. In those kinds of situations, usage of dummy variables turns out to be handy. In case of any economic pre and post analysis, dummy variable is the one, usage of which is almost irreplaceable. For example, a researcher has a dataset for seventy years, and during that period, a particular economic policy has been implemented. Now, in order to capture the effect of that particular policy, the dummy variable can be used. If the policy has been implemented in the 52nd year, then the value of the dummy variable will be zero for first fifty one samples, and one for the rest of the period. After estimation, by plugging the value as either zero or one, the effect of the policy on the other model variables can be captured very easily.

To know more about the different aspects of using a dummy variable in any mathematical model, kindly browse through the pages of

One comment

  1. While reviewing Literature for my study, I came across numerous variables and thus I have been in a haywire. I never knew this concept could be used. I will consult my guide on this and try if I could use it well too.

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