Random Effects And Spatial Autocorrelation With Equal Weights
AbstractThis note considers a panel data regression model with spatial autoregressive disturbances and random effects where the weight matrix is normalized and has equal elements. This is motivated by Kelejian, Prucha, and Yuzefovich (2005, Journal of Regional Science, forthcoming), who argue that such a weighting matrix, having blocks of equal elements, might be considered when units are equally distant within certain neighborhoods but unrelated between neighborhoods. We derive a simple weighted least squares transformation that obtains generalized least squares (GLS) on this model as a simple ordinary least squares (OLS). For the special case of a spatial panel model with no random effects, we obtain two sufficient conditions where GLS on this model is equivalent to OLS. Finally, we show that these results, for the equal weight matrix, hold whether we use the spatial autoregressive specification, the spatial moving average specification, the spatial error components specification, or the Kapoor, Kelejian, and Prucha (2005, Journal of Econometrics, forthcoming) alternative to modeling panel data with spatially correlated error components.I thank Paolo Paruolo and an anonymous referee for helpful comments and suggestions.
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Bibliographic InfoArticle provided by Cambridge University Press in its journal Econometric Theory.
Volume (Year): 22 (2006)
Issue (Month): 05 (October)
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Other versions of this item:
- Badi H. Baltagi, 2006. "Random effects and Spatial Autocorrelations with Equal Weights," Center for Policy Research Working Papers 89, Center for Policy Research, Maxwell School, Syracuse University.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
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- Badi H. Baltagi & Seuck Heun Song & Won Koh, 2002.
"Testing Panel Data Regression Models with Spatial Error Correlation,"
10th International Conference on Panel Data, Berlin, July 5-6, 2002
B6-4, International Conferences on Panel Data.
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