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Bayesian estimation and model selection for spatial Durbin error model with finite distributed lags

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  • Han, Xiaoyi
  • Lee, Lung-fei
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    Abstract

    In this paper we investigate a spatial Durbin error model with finite distributed lags and consider the Bayesian MCMC estimation of the model with a smoothness prior. We study also the corresponding Bayesian model selection procedure for the spatial Durbin error model, the spatial autoregressive model and the matrix exponential spatial specification model. We derive expressions of the marginal likelihood of the three models, which greatly simplify the model selection procedure. Simulation results suggest that the Bayesian estimates of high order spatial distributed lag coefficients are more precise than the maximum likelihood estimates. When the data is generated with a general declining pattern or a unimodal pattern for lag coefficients, the spatial Durbin error model can better capture the pattern than the SAR and the MESS models in most cases. We apply the procedure to study the effect of right to work (RTW) laws on manufacturing employment.

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    Bibliographic Info

    Article provided by Elsevier in its journal Regional Science and Urban Economics.

    Volume (Year): 43 (2013)
    Issue (Month): 5 ()
    Pages: 816-837

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    Handle: RePEc:eee:regeco:v:43:y:2013:i:5:p:816-837

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

    Related research

    Keywords: Spatial Durbin error model; Spatial autoregressive model; Matrix exponential spatial specification; Smoothness prior; Marginal likelihood; Bayesian estimation;

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    1. Holloway, Garth & Shankar, Bhavani & Rahman, Sanzidur, 2002. "Bayesian spatial probit estimation: a primer and an application to HYV rice adoption," Agricultural Economics, Blackwell, vol. 27(3), pages 383-402, November.
    2. L W Hepple, 1995. "Bayesian techniques in spatial and network econometrics: 2. Computational methods and algorithms," Environment and Planning A, Pion Ltd, London, vol. 27(4), pages 615-644, April.
    3. Kelejian, Harry H. & Prucha, Ingmar R., 2010. "Specification and estimation of spatial autoregressive models with autoregressive and heteroskedastic disturbances," Journal of Econometrics, Elsevier, vol. 157(1), pages 53-67, July.
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    5. L W Hepple, 1995. "Bayesian techniques in spatial and network econometrics: 1. Model comparison and posterior odds," Environment and Planning A, Pion Ltd, London, vol. 27(3), pages 447-469, March.
    6. Charlene M. Kalenkoski & Donald J. Lacombe, 2006. "Right-to-work Laws and Manufacturing Employment: The Importance of Spatial Dependence," Southern Economic Journal, Southern Economic Association, vol. 73(2), pages 402–418, October.
    7. William J. Moore & Robert J. Newman, 1985. "The effects of right-to-work laws: A review of the literature," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 38(4), pages 571-585, July.
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    11. Olivier Parent & James P. Lesage, 2007. "Bayesian Model Averaging for Spatial Econometric Models ," University of Cincinnati, Economics Working Papers Series 2007-02, University of Cincinnati, Department of Economics.
    12. James P. Lesage & Christina L. Ha, 2012. "The Impact of Migration on Social Capital: Do Migrants Take Their Bowling Balls with Them?," Growth and Change, Gatton College of Business and Economics, University of Kentucky, vol. 43(1), pages 1-26, 03.
    13. Han, Xiaoyi & Lee, Lung-fei, 2013. "Model selection using J-test for the spatial autoregressive model vs. the matrix exponential spatial model," Regional Science and Urban Economics, Elsevier, vol. 43(2), pages 250-271.
    14. Shiller, Robert J, 1973. "A Distributed Lag Estimator Derived from Smoothness Priors," Econometrica, Econometric Society, vol. 41(4), pages 775-88, July.
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