Spatial Fixed Effects and Spatial Dependence
AbstractWe investigate the common conjecture in applied econometric work that the inclusion of spatial fixed effects in a regression specification re- moves spatial dependence. We demonstrate analytically and by means of a series of simulation experiments how evidence of the removal of spatial autocorrelation by spatial fixed effects may be spurious when the true DGP takes the form of a spatial lag or spatial error dependence. In addition, we also show that only in the special case where the dependence is group-wise, with all observations in the same group as neighbors of each other, do spatial fixed effects correctly remove spatial correlation.
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Bibliographic InfoPaper provided by GeoDa Center for Geospatial Analysis and Computation in its series GeoDa Center Working Papers with number 1045.
Date of creation: 2011
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spatial autocorrelation; spatial econometrics; spatial externalities; spatial fixed effects; spatial interaction; spatial weights;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-13 (All new papers)
- NEP-ECM-2012-06-13 (Econometrics)
- NEP-GEO-2012-06-13 (Economic Geography)
- NEP-URE-2012-06-13 (Urban & Real Estate Economics)
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