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The spatial time lag in panel data models

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  • Tao, Ji
  • Yu, Jihai
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Abstract

This paper proposes to include the spatial time lag in empirical applications using spatial panel data models, and also explains why the coefficient of that term can be negative. We provide simple theoretical frameworks to justify the relevance of the spatial time lag to empirical specifications, which can be caused by either partial adjustments or inter-temporal budget constraints. Monte Carlo experiments suggest that omitting a relevant spatial time lag can result in significant biases in regression estimates, while including an irrelevant spatial time lag causes no obvious loss of efficiency.

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Bibliographic Info

Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 117 (2012)
Issue (Month): 3 ()
Pages: 544-547

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Handle: RePEc:eee:ecolet:v:117:y:2012:i:3:p:544-547

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Web page: http://www.elsevier.com/locate/ecolet

Related research

Keywords: Spatial time lag; Spatial autoregression; Dynamic panels; Expenditures;

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  1. Matz Dahlberg & Eva Johansson, 2000. "An examination of the dynamic behaviour of local governments using GMM bootstrapping methods," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(4), pages 401-416.
  2. Rassenti, Stephen & Reynolds, Stanley S. & Smith, Vernon L. & Szidarovszky, Ferenc, 2000. "Adaptation and convergence of behavior in repeated experimental Cournot games," Journal of Economic Behavior & Organization, Elsevier, vol. 41(2), pages 117-146, February.
  3. Gali, Jordi, 1994. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 1-8, February.
  4. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
  5. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December.
  6. 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.
  7. Kapoor, Mudit & Kelejian, Harry H. & Prucha, Ingmar R., 2007. "Panel data models with spatially correlated error components," Journal of Econometrics, Elsevier, vol. 140(1), pages 97-130, September.
  8. Bergstrom, Pal & Dahlberg, Matz & Mork, Eva, 2004. "The effects of grants and wages on municipal labour demand," Labour Economics, Elsevier, vol. 11(3), pages 315-334, June.
  9. Baltagi, Badi H. & Heun Song, Seuck & Cheol Jung, Byoung & Koh, Won, 2007. "Testing for serial correlation, spatial autocorrelation and random effects using panel data," Journal of Econometrics, Elsevier, vol. 140(1), pages 5-51, September.
  10. Yu, Jihai & de Jong, Robert & Lee, Lung-fei, 2008. "Quasi-maximum likelihood estimators for spatial dynamic panel data with fixed effects when both n and T are large," Journal of Econometrics, Elsevier, vol. 146(1), pages 118-134, September.
  11. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
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Cited by:
  1. Ho, Chun-Yu & Wang, Wei & Yu, Jihai, 2013. "Growth spillover through trade: A spatial dynamic panel data approach," Economics Letters, Elsevier, vol. 120(3), pages 450-453.

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