Standardized LM tests for spatial error dependence in linear or panel regressions
AbstractThe robustness of the LM tests for spatial error dependence of Burridge (1980) and Born and Breitung (2011) for the linear regression model, and Anselin (1988) and Debarsy and Ertur (2010) for the panel regression model with random or fixed effects are examined. While all tests are asymptotically robust against distributional misspecification, their finite sample behavior may be sensitive to the spatial layout. To overcome this shortcoming, standardized LM tests are suggested. Monte Carlo results show that the new tests possess good finite sample properties. An important observation made throughout this study is that the LM tests for spatial dependence need to be both mean- and variance-adjusted for good finite sample performance to be achieved. The former is, however, often neglected in the literature. Key Words: Bootstrap; Distributional misspecification; Group interaction; LM test; Moranâs I Test; Robustness; Spatial layout; Spatial panel models JEL No. C21, C23, C5
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Bibliographic InfoArticle provided by Royal Economic Society in its journal Econometrics Journal.
Volume (Year): 16 (2013)
Issue (Month): 1 (02)
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Other versions of this item:
- Badi H. Baltagi & Zhenlin Yang, 2010. "Standardized LM Tests for Spatial Error Dependence in Linear or Panel Regressions," Working Papers 11-2010, Singapore Management University, School of Economics.
- Badi H. Baltagi & Zhenlin Yang, 2012. "Standardized LM Tests for Spatial Error Dependence in Linear or Panel Regressions," Center for Policy Research Working Papers 142, Center for Policy Research, Maxwell School, Syracuse University.
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
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