Should We Care (More) About Data Aggregation? Evidence from Democracy Indices.

Aggregation tools transform multidimensional data into indices. To investigate how the design of an aggregation process influences regression results, we build democracy indices that differ regarding their scale and aggregation function. Our results show that the shape of the aggregation function significantly affects OLS and 2SLS estimates since different shapes produce systematically different index values for regimes at the lower and upper end of the democracy spectrum. We also find that dichotomous indices produce significantly smaller OLS estimates than continuous indices because of greater measurement uncertainty. Whether continuous and dichotomous indices cause different 2SLS estimates depends on their design.