Utilizing the Logistic Regression Model in Analyzing the Categorical Data of Economic Effects

Abstract

The categorical data has a significant role in representing statistical binary variables, and they are analyzed by means of grouping the response variable into ordered categories. Thereby, the dependent variable becomes of type binary qualitative variable. The data related to the financial position of world countries is classified within the categorical data. This work is to study the economic effects of an individual's different factors on determining the richness or poorness levels of a selected population of countries. Moreover, a logistic regression model is to be created to estimate these levels. As a sample of research, the categorical data relevant to the financial status of 20 Arabic countries were drawn from the website of the World Bank, WB. In addition, for comparison purpose, another similar set of categorical data was generated by MATLAB too. The paper has been based on two hypotheses, first is the well-known regression models, like the ordinary least squares or maximum likelihood, are not accurate in case of binary qualitative variables. Second, is utilizing the logistic regression model as an alternative model to achieve the paper goal.  The paper results, for both WB data and MATLAB data, have successfully proved the ability of the logistic regression model in manipulating the categorical data and predicting the coefficients of the corresponding regression models.