Question

how should i run my data when i have 4 categories under 1 policy. should i use dummy variable for each categories or should i average the 4 categories. this is my model

export = β + β1adoption rate + β2 policy

Answer 1

When we run regression analysis if we have categorical variable. Then we have to use the dummy variable.

Using the average for categorical data is not appropriate.

for example :- if we have 1000 observation & categorical variable with categories small medium large then we make dummy variables.

So here you should have to make dummy variables to run regression analysis.

(Note:- calculating average is not prefred for categorical data.average is not a good measure for categorical data)