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Testing for Spatial Error Autocorrelation in the Presence of Endogenous Regressors

Author

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  • Luc Anselin

    (Regional Research Institute and Department of Economics, West Virginia University, Morgantown, WV 26506-6825 USA, lanselin@lwvu.edu)

  • Harry H. Kelejian

    (Department of Economics, University of Maryland, College Park, MD 20742 USA, kelejian@econ.umd.edu)

Abstract

This paper examines the properties of Moran's I test for spatial error autocorrelation when endogenous variables are included in the regression specification and estimation is carried out by means of instrumental variables procedures (such as two-stage least squares). The asymptotic distribution of the statistic is formally derived in a general model that encompasses endogeneity due to system feed-backs as well as spatial interaction (in the form of spatially lagged dependent variables). The small-sample performance of the test is assessed in a series of Monte Carlo simulation experiments, and the test is compared to a number of ad hoc approaches that have been suggested in the literature. While some of these ad hoc procedures perform surprisingly well, the new test is the only acceptable one in the presence of spatially lagged dependent variables. The test is straightforward to compute and should become part of routine specification testing of models with endogeneity that are estimated for cross-sectional data.

Suggested Citation

  • Luc Anselin & Harry H. Kelejian, 1997. "Testing for Spatial Error Autocorrelation in the Presence of Endogenous Regressors," International Regional Science Review, , vol. 20(1-2), pages 153-182, April.
    • Handle: RePEc:sae:inrsre:v:20:y:1997:i:1-2:p:153-182
    DOI: 10.1177/016001769702000109
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    References listed on IDEAS

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    1. Luc Anselin & Raymond J. G. M. Florax, 1995. "Small Sample Properties of Tests for Spatial Dependence in Regression Models: Some Further Results," Advances in Spatial Science, in: Luc Anselin & Raymond J. G. M. Florax (ed.), New Directions in Spatial Econometrics, chapter 2, pages 21-74, Springer.
    2. Harry H. Kelejian & Dennis P. Robinson, 1993. "A Suggested Method Of Estimation For Spatial Interdependent Models With Autocorrelated Errors, And An Application To A County Expenditure Model," Papers in Regional Science, Wiley Blackwell, vol. 72(3), pages 297-312, July.
    3. Harry H. Kelejian & Dennis P. Robinson, 1997. "Infrastructure Productivity Estimation And Its Underlying Econometric Specifications: A Sensitivity Analysis," Papers in Regional Science, Wiley Blackwell, vol. 76(1), pages 115-131, January.
    4. Anselin, Luc & Bera, Anil K. & Florax, Raymond & Yoon, Mann J., 1996. "Simple diagnostic tests for spatial dependence," Regional Science and Urban Economics, Elsevier, vol. 26(1), pages 77-104, February.
    5. Weibull, Jorgen W., 1976. "An axiomatic approach to the measurement of accessibility," Regional Science and Urban Economics, Elsevier, vol. 6(4), pages 357-379, December.
    6. Raymond J. G. M. Florax & Serge Rey, 1995. "The Impacts of Misspecified Spatial Interaction in Linear Regression Models," Advances in Spatial Science, in: Luc Anselin & Raymond J. G. M. Florax (ed.), New Directions in Spatial Econometrics, chapter 5, pages 111-135, Springer.
    7. Hordijk, L., 1974. "Spatial correlation in the disturbances of a linear interregional model," Regional and Urban Economics, Elsevier, vol. 4(2), pages 117-140, October.
    8. Holtz-Eakin, Douglas, 1994. "Public-Sector Capital and the Productivity Puzzle," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 12-21, February.
    9. Anselin, Luc, 1990. "Some robust approaches to testing and estimation in spatial econometrics," Regional Science and Urban Economics, Elsevier, vol. 20(2), pages 141-163, September.
    10. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119, Decembrie.
    11. Anselin, Luc & Hudak, Sheri, 1992. "Spatial econometrics in practice : A review of software options," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 509-536, September.
    12. Bartels, Cornelis P. A. & Hordijk, Leen, 1977. "On the power of the generalized Moran contiguity coefficient in testing for spatial autocorrelation among regression disturbances," Regional Science and Urban Economics, Elsevier, vol. 7(1-2), pages 83-101, March.
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