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I am struggling to interpret a interaction term.

A 1% point increase in military expenditure growth, leads to a X% point change in GDP growth.

what is a 1% point increase in military expenditure growth? i.e. is it a 1% point increase in the rate of increase of military growth. For example from 5% to 6%.

OR

is it 5% -> 5.005%

and how does this relate to the actual variable military expenditure not the military expenditure growth?

My model is of the form: my model

whereby the deltalog(variable) = growth of (variable)

My thesis supervisor has told me that "a 1 percentage point increase in the growth of military expenditure as a % of GDP, is associated with a beta percentage point increase in the growth of GDP per Capita."

I am just trying to wrap my head around the meaning of this? Would it be an increase in the rate of increase of GDP?

Any help greatly appreciated

thanks

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  • $\begingroup$ stats.stackexchange.com/questions/337847/… $\endgroup$ – oneloop Apr 1 '18 at 20:40
  • $\begingroup$ @oneloop thanks, but rather I am after the intuition, as a 1% change is different to 1% point - thats the thing im after.. $\endgroup$ – Stat-metrics Apr 1 '18 at 20:48
  • $\begingroup$ If you can provide information on the data set and the model you are using, this will help others prepare their responses. $\endgroup$ – Gregg H Apr 1 '18 at 21:01
  • $\begingroup$ @GreggH Sorry about that i shall edit my original message $\endgroup$ – Stat-metrics Apr 1 '18 at 21:39
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"Percentage point" generally refers to a unit that is invariant with respect to the starting point.

So in your example, a one percentage point increase would be from 5% to 6%.

A one percent increase would be from 5% to 5.05%.

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  • $\begingroup$ I see as such would a 1% point increase in GDP growth rate of 0.1835, thus be 1.1835? $\endgroup$ – Stat-metrics Apr 1 '18 at 21:38
  • $\begingroup$ If the GDP growth rate is in a percentage scale. In other words, from 0.1835% to 1.1835% is a one percentage point increase. If 0.1835 is something other than a percentage, "percentage point increase" wouldn't have any particular meaning. $\endgroup$ – Patrick Malone Apr 1 '18 at 21:45
  • $\begingroup$ ahhh i see, if the case were that 0.1835 was the raw rate after computing (new GDP - old GDP/ new GDP), could i multiply that by 100 to make 18.35% and then talk about a percentage point increase as 18.35% to 19.35%? $\endgroup$ – Stat-metrics Apr 1 '18 at 21:48
  • $\begingroup$ I don't know economics, but wouldn't it be (new - old)/ old ? But in either case, yes, if you take a measure that is a percentage, then a percentage point increase increments the number by one. $\endgroup$ – Patrick Malone Apr 1 '18 at 22:00
  • $\begingroup$ you are correct, my fault! and thank you very much! $\endgroup$ – Stat-metrics Apr 1 '18 at 22:01

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