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I am running a RE regression and I have export similarity index between two countries as the dependent variable and have a dummy variable such as share a border(=1 if countries share border, 0 otherwise). This is, of course, time invariant.

My question is: how do I interpret the coefficient of this dummy variable? For example, if the coefficient is 0.15, how would I interpret it? I have gone through multiple papers but failed to find the interpretation. Please help!

Help will be greatly appreciated!

Thank you!

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As a first pass, I would interpret as with any other dummy variable's coefficient. Assuming a linear model, when two countries share a border, their export similarity index rises, on average, by 0.15 when all other variables are held fixed.

If you're writing a report on this model, you'll obviously need to discuss at length what this actually means. The result seems intuitive: countries that share a border likely share other similarities that would lead to their portfolio of exports having more in common than if the two countries were separated by some larger geological or political distance.

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