Dummy variables are used to incorporate categorical information into regression analysis from "summary" of Introduction to Econometrics by Christopher Dougherty
When conducting regression analysis, it is often necessary to incorporate categorical information into the model. One way to do this is by using dummy variables. Dummy variables are binary variables that take the value of 0 or 1 to represent different categories within a categorical variable. For example, if we have a categorical variable like "gender" with two categories (male and female), we can create a dummy variable that takes the value of 1 for male and 0 for female (or vice versa). By including dummy variables in the regression model, we can account for the effects of categorical variables on the dependent variable. This allows us to estimate the impact of each category on the outcome variable, while controlling for other factors in the model. ...
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