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When to Use?
When to Use?
When the exogenous latent variable or the moderator variable has a formative measurement model, the product indicator approach cannot be applied. The two-stage approach should be used.
This approach extends the product indicator approach to formative measures by making explicit use of PLS-SEM's advantage to estimate latent variable scores (Henseler and Chin, 2010; Rigdon et al. 2010).
The two-stage approach is not restricted to models that include formative measurement approaches but can also be used when all constructs are measured by reflective indicators.
Stage 1
Stage 1
The main effects model is estimated without the interaction term to obtain the scores of the latent variables. These are saved for further analysis in the second stage.
Stage 2
Stage 2
The latent variable scores of the exogenous latent variable and moderator variable from Stage 1 are multiplied to create a single-item measure used to measure the interaction term.
All other latent variables are represented by means of single items of their latent variable scores from Stage 1.
Exercise
Exercise
Download the data here and draw the model below.
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