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Testing endogeneity of spatial and social networks

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  • Cheng, Wei
  • Lee, Lung-fei

Abstract

The spatial autoregressive framework (SAR) has been widely used in studying spatial interdependence and social interaction. Previous research have assumed the spatial weight matrix (also known as sociomatrix or adjacency matrix) to be exogenously given. However, ignoring the possibility that adjacency matrices can be endogenous may lead to inconsistent estimates. Therefore, it is desirable to test whether spatial weights are endogenous or not. This paper constructs a Hausman specification test and one simple equivalent test under a general setting. We also provide LM test statistics for two representative SAR models with endogenous spatial/network relationships in the literature. We summarize their testing features and establish their asymptotic properties under the null and the alternative hypotheses. Monte Carlo simulations are conducted to examine the finite-sample performance of those tests.

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  • Cheng, Wei & Lee, Lung-fei, 2017. "Testing endogeneity of spatial and social networks," Regional Science and Urban Economics, Elsevier, vol. 64(C), pages 81-97.
    • Handle: RePEc:eee:regeco:v:64:y:2017:i:c:p:81-97
    DOI: 10.1016/j.regsciurbeco.2017.03.005
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    Cited by:

    1. Qu, Xi & Lee, Lung-fei & Yang, Chao, 2021. "Estimation of a SAR model with endogenous spatial weights constructed by bilateral variables," Journal of Econometrics, Elsevier, vol. 221(1), pages 180-197.
    2. Jieun Lee, 2022. "Testing Endogeneity of Spatial Weights Matrices in Spatial Dynamic Panel Data Models," Papers 2209.05563, arXiv.org.
    3. Herrera Gómez, Marcos, 2017. "Fundamentos de Econometría Espacial Aplicada [Fundamentals of Applied Spatial Econometrics]," MPRA Paper 80871, University Library of Munich, Germany.
    4. Weiming Li & Zhaoyang Cai & Shixiong Cao, 2021. "What has caused regional income inequality in China? Effects of 10 socioeconomic factors on per capita income," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 23(9), pages 13403-13417, September.
    5. Wei Cheng, 2022. "Consistent EM algorithm for a spatial autoregressive probit model," Journal of Spatial Econometrics, Springer, vol. 3(1), pages 1-23, December.
    6. Malabika Koley & Anil K. Bera, 2022. "Testing for spatial dependence in a spatial autoregressive (SAR) model in the presence of endogenous regressors," Journal of Spatial Econometrics, Springer, vol. 3(1), pages 1-46, December.
    7. Bera, Anil K. & Doğan, Osman & Taşpınar, Süleyman, 2018. "Simple tests for endogeneity of spatial weights matrices," Regional Science and Urban Economics, Elsevier, vol. 69(C), pages 130-142.
    8. Jieun Lee, 2022. "Evidence and Strategy on Economic Distance in Spatially Augmented Solow-Swan Growth Model," Papers 2209.05562, arXiv.org.

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