Panel Data Inference under Spatial Dependence

Badi Baltagi and Alain Pirotte
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Alain Pirotte: ERMES (CNRS) and TEPP (CNRS), Université Panthéon-Assas Paris II, France INRETS-DEST, National Institute of Research on Transports and Safety, France

No 123, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: This paper focuses on inference based on the usual panel data estimators of a one-way error component regression model when the true specification is a spatial error component model. Among the estimators considered, are pooled OLS, random and fixed effects, maximum likelihood under normality, etc. The spatial effects capture the cross-section dependence, and the usual panel data estimators ignore this dependence. Two popular forms of spatial autocorrelation are considered, namely, spatial auto-regressive random effects (SAR-RE) and spatial moving average random effects (SMA-RE). We show that when the spatial coefficients are large, test of hypothesis based on the usual panel data estimators that ignore spatial dependence can lead to misleading inference.

Keywords: Panel data; Hausman test; Random effect; Spatial autocorrelation; Maximum Likelihood. (search for similar items in EconPapers)
JEL-codes: C33 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2010-03
New Economics Papers: this item is included in nep-ecm, nep-geo and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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https://surface.syr.edu/cpr/43/ (application/pdf)

Related works:
Journal Article: Panel data inference under spatial dependence (2010)
Working Paper: Panel Data Inference Under Spatial Dependence (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:max:cprwps:123

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