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Estimation of spatial autoregressive panel data models with fixed effects

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  • Lee, Lung-fei
  • Yu, Jihai

Abstract

This paper establishes asymptotic properties of quasi-maximum likelihood estimators for SAR panel data models with fixed effects and SAR disturbances. A direct approach is to estimate all the parameters including the fixed effects. Because of the incidental parameter problem, some parameter estimators may be inconsistent or their distributions are not properly centered. We propose an alternative estimation method based on transformation which yields consistent estimators with properly centered distributions. For the model with individual effects only, the direct approach does not yield a consistent estimator of the variance parameter unless T is large, but the estimators for other common parameters are the same as those of the transformation approach. We also consider the estimation of the model with both individual and time effects.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 154 (2010)
Issue (Month): 2 (February)
Pages: 165-185

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Handle: RePEc:eee:econom:v:154:y:2010:i:2:p:165-185

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

Related research

Keywords: Spatial autoregression Panel data Fixed effects Quasi-maximum likelihood estimation Conditional likelihood;

References

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  1. Baltagi, Badi H. & Song, Seuck Heun & Koh, Won, 2003. "Testing panel data regression models with spatial error correlation," Journal of Econometrics, Elsevier, vol. 117(1), pages 123-150, November.
  2. Manuel Arellano & Jinyong Hahn, 2005. "Understanding Bias In Nonlinear Panel Models: Some Recent Developments," Working Papers wp2005_0507, CEMFI.
  3. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  4. Cem Ertur & Wilfried Koch, 2007. "Growth, technological interdependence and spatial externalities: theory and evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(6), pages 1033-1062.
  5. Chamberlain, Gary, 1982. "Multivariate regression models for panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 5-46, January.
  6. Nickell, Stephen J, 1981. "Biases in Dynamic Models with Fixed Effects," Econometrica, Econometric Society, vol. 49(6), pages 1417-26, November.
  7. Nerlove, Marc, 1971. "A Note on Error Components Models," Econometrica, Econometric Society, vol. 39(2), pages 383-96, March.
  8. Christopher L. Foote, 2007. "Space and time in macroeconomic panel data: young workers and state-level unemployment revisited," Working Papers 07-10, Federal Reserve Bank of Boston.
  9. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July.
  10. 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.
  11. Jinyong Hahn & Guido Kuersteiner, 2002. "Asymptotically Unbiased Inference for a Dynamic Panel Model with Fixed Effects when Both "n" and "T" Are Large," Econometrica, Econometric Society, vol. 70(4), pages 1639-1657, July.
  12. Badi H. Baltagi & Peter Egger & Michael Pfafermayr, 2009. "A Generalized Spatial Panel Data Model with Random Effects," Center for Policy Research Working Papers 113, Center for Policy Research, Maxwell School, Syracuse University.
  13. 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.
  14. Lancaster, Tony, 2000. "The incidental parameter problem since 1948," Journal of Econometrics, Elsevier, vol. 95(2), pages 391-413, April.
  15. H. Kelejian, Harry & Prucha, Ingmar R., 2001. "On the asymptotic distribution of the Moran I test statistic with applications," Journal of Econometrics, Elsevier, vol. 104(2), pages 219-257, September.
  16. Lee, Lung-fei, 2007. "GMM and 2SLS estimation of mixed regressive, spatial autoregressive models," Journal of Econometrics, Elsevier, vol. 137(2), pages 489-514, April.
  17. Lee, Lung-fei, 2007. "Identification and estimation of econometric models with group interactions, contextual factors and fixed effects," Journal of Econometrics, Elsevier, vol. 140(2), pages 333-374, October.
  18. Hahn, Jinyong & Moon, Hyungsik Roger, 2006. "Reducing Bias Of Mle In A Dynamic Panel Model," Econometric Theory, Cambridge University Press, vol. 22(03), pages 499-512, June.
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