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Spatial econometric STAR models: Lagrange multiplier tests, Monte Carlo simulations and an empirical application

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  • Pede, Valerien O.
  • Florax, Raymond J.G.M.
  • Lambert, Dayton M.

Abstract

This paper investigates nonlinearity in parametric spatial process models that incorporate regime-switching by means of a smooth transition autoregressive process. We derive a Lagrange Multiplier (LM) test for nonlinearity as well as several joint LM tests for nonlinearity and the traditional spatial processes of autoregressive errors and an erroneously omitted spatially lagged dependent variable. Monte Carlo simulations demonstrate the size and power of the tests in finite samples. In an empirical application, we demonstrate that the suggested approach can be used to test for spatial heterogeneity in the form of spatial regimes or for the appropriateness of the spatial cross-regressive model containing spatially lagged exogenous variables.

Suggested Citation

  • Pede, Valerien O. & Florax, Raymond J.G.M. & Lambert, Dayton M., 2014. "Spatial econometric STAR models: Lagrange multiplier tests, Monte Carlo simulations and an empirical application," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 118-128.
    • Handle: RePEc:eee:regeco:v:49:y:2014:i:c:p:118-128
    DOI: 10.1016/j.regsciurbeco.2014.07.001
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    5. Xu, Wan & Khachatryan, Hayk, 2013. "The Impact of Integrated Pest Management Practices on U.S. National Nursery Industry Annul Sales Revenue: An Application of Smooth Transition Spatial Autoregressive Models," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 142961, Southern Agricultural Economics Association.
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    8. Pontarollo, Nicola & Mendieta, Rodrigo & Ontaneda, Diego, 2019. "Canton growth in Ecuador and the role of spatial heterogeneity," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    9. Anna Gloria Billé & Roberto Benedetti & Paolo Postiglione, 2017. "A two-step approach to account for unobserved spatial heterogeneity," Spatial Economic Analysis, Taylor & Francis Journals, vol. 12(4), pages 452-471, October.
    10. Elham Vafaei & Parviz Mohammadzadeh & Hossein Asgharpour, 2019. "The Evaluation of Suitability of Spatial Error STAR Model for Modeling Convergence of Social Welfare of Iran's Provinces," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 23(1), pages 47-62, Winter.
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    12. Keqiang Dong & Liao Guo, 2021. "Research on the Spatial Correlation and Spatial Lag of COVID-19 Infection Based on Spatial Analysis," Sustainability, MDPI, vol. 13(21), pages 1-16, October.

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    More about this item

    Keywords

    Spatial econometrics; Nonlinearity; Autoregressive smooth transition;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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