Bivariate Relationships Between Variables
ECO 230: Business and Economics Research
1
Goals
•Detect relationships between variables.
•Be able to prescribe appropriate statistical methods for measuring rela-
tionship based on scale of measurement.
2 Correlation
2.1 Linear and Monotonic Relationships
Correlation
Correlation
Correlation: when two variables move together in some fashion.
Correlations measure monotonic relationships.
•Positive: When one variable increases, the other tends to increase.
•Negative: When one variable increases, the other tends to decrease.
Common Focus: Linear Relationships
Linear relationships: Visually illustrated with a straight line
Common monotonic relationships, but not linear:
•Employment experience and income
•Employment experience and productivity
•Wealth and consumer spending
2.2 Pearson vs Spearman Correlation
Pearson vs Spearman Correlation
Pearson linear correlation coefficient
•Measure of the strength of the linear relationship
•Parametric test for interval or ratio data
•Null hypothesis: zero linear correlation between two variables.
1
