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Testing Panel Data Regression Models with Spatial Error Correlation

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Author Info
Badi H. Baltagi () (Department of Economics, Texas A&M University)
Seuck Heun Song () (Department of Statistics, Korea University)
Won Koh () (Department of Statistics, Korea University)

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Abstract

This paper derives several Lagrange Multiplier tests for the panel data regression model with spatial error correlation. These tests draw upon two strands of earlier work. The first is the LM tests for the spatial error correlation model discussed in Anselin (1988, 1999) and Anselin, Bera, Florax and Yoon (1996), and the second is the LM tests for the error component panel data model discussed in Breusch and Pagan (1980) and Baltagi, Chang and Li (1992). The idea is to allow for both spatial error correlation as well as random region effects in the panel data regression model and to test for their joint significance. Additionally, this paper derives conditional LMtests, which test for random regional effects given the presence of spatial error correlation. Also, spatial error correlation given the presence of random regional effects. These conditional LM tests are an alternative to the one directional LM tests that test for random regional effects ignoring the presence of spatial error correlation or the one directional LM tests for spatial error correlation ignoring the presence of random regional effects. We argue that these joint and conditional LM tests guard against possible misspecification. Extensive Monte Carlo experiments are conducted to study the performance of these LM tests as well as the corresponding Likelihood Ratio tests.

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Paper provided by International Conferences on Panel Data in its series 10th International Conference on Panel Data, Berlin, July 5-6, 2002 with number B6-4.

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Date of creation: Mar 2002
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Handle: RePEc:cpd:pd2002:b6-4

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Related research
Keywords: Panel data; Spatial error correlation; Lagrange Multiplier tests; Likelihood Ratio tests;

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  5. 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. [Downloadable!] (restricted)
  6. 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. [Downloadable!] (restricted)
  7. Breusch, T S & Pagan, A R, 1980. "The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics," Review of Economic Studies, Blackwell Publishing, vol. 47(1), pages 239-53, January. [Downloadable!] (restricted)
  8. Kathleen P. Bell & Nancy E. Bockstael, 2000. "Applying the Generalized-Moments Estimation Approach to Spatial Problems Involving Microlevel Data," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 72-82, February. [Downloadable!] (restricted)
  9. Gourieroux, Christian & Holly, Alberto & Monfort, Alain, 1982. "Likelihood Ratio Test, Wald Test, and Kuhn-Tucker Test in Linear Models with Inequality Constraints on the Regression Parameters," Econometrica, Econometric Society, vol. 50(1), pages 63-80, January. [Downloadable!] (restricted)
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  11. Badi H. Baltagi & Dong Li, 2006. "Prediction in the Panel Data Model with Spatial Correlation: The Case of Liquor," Center for Policy Research Working Papers 84, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
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  13. Baltagi, Badi H. & Chang, Young-Jae & Li, Qi, 1992. "Monte Carlo results on several new and existing tests for the error component model," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 95-120. [Downloadable!] (restricted)
  14. Moulton, Brent R & Randolph, William C, 1989. "Alternative Tests of the Error Components Model," Econometrica, Econometric Society, vol. 57(3), pages 685-93, May. [Downloadable!] (restricted)
  15. Islam, Nazrul, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 1127-70, November. [Downloadable!] (restricted)
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  19. Baltagi, Badi H. & Boozer, Michael A., 1997. "Econometric Analysis of Panel Data," Econometric Theory, Cambridge University Press, vol. 13(05), pages 747-754, October. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Byeong Park & Seuck Song, 2007. "Comments on: Panel data analysis—advantages and challenges," TEST: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer, vol. 16(1), pages 47-51, May. [Downloadable!] (restricted)
  2. Won Koh & Badi H. Baltagi & Seuck Heun Song, 2004. "Testing for Serial Correlation, Spatial Autocorrelation and Random Effects," Econometric Society 2004 Far Eastern Meetings 415, Econometric Society. [Downloadable!]
    Other versions:
  3. Badi H. Baltagi & Long Liu, 2008. "Testing for Random Effects and Spatial Lag Dependence in Panel Data Models," Center for Policy Research Working Papers 102, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
    Other versions:
  4. Arnab Bhattacharjee & Chris Jensen-Butler, 2005. "Estimation of Spatial Weights Matrix in a Spatial Error Model, with an Application to Diffusion in Housing Demand," CRIEFF Discussion Papers 0519, Centre for Research into Industry, Enterprise, Finance and the Firm. [Downloadable!]
  5. Joan Costa-Font & Francesco Moscone, 2008. "The impact of decentralization and inter-territorial interactions on Spanish health expenditure," Empirical Economics, Springer, vol. 34(1), pages 167-184, February. [Downloadable!] (restricted)
  6. Jushan Bai & Chihwa Kao, 2005. "On the Estimation and Inference of a Panel Cointegration Model with Cross-Sectional Dependence," Center for Policy Research Working Papers 75, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
  7. Conley, Timothy G. & Molinari, Francesca, 2005. "Spatial Correlation Robust Inference with Errors in Location or Distance," Working Papers 05-12, Cornell University, Center for Analytic Economics. [Downloadable!]
    Other versions:
  8. Arnab Bhattacharjee & Chris Jensen-Butler, 2005. "A Model of Regional Housing Markets in England and Wales," CRIEFF Discussion Papers 0508, Centre for Research into Industry, Enterprise, Finance and the Firm. [Downloadable!]
  9. Thomas De Graaff & Jaap Boter & Jan Rouwendal, 2006. "Do Dutch Musea Compete Or Cooperate?," ERSA conference papers ersa06p387, European Regional Science Association. [Downloadable!]
  10. Chasco, C. & López, F.A., 2004. "Modelos de regresión espacio-temporales en la estimación de la renta municipal: el caso de la Región de Murcia," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 22, pages 1-24, Diciembre. [Downloadable!] (restricted)
  11. Badi H. Baltagi, 2006. "Random effects and Spatial Autocorrelations with Equal Weights," Center for Policy Research Working Papers 89, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
    Other versions:
  12. Gebremeskel H. Gebremariam & Tesfa G. Gebremedhin & Peter V. Schaeffer & Randall W. Jackson, 2008. "A Simultaneous Spatial Panel Data Model of Regional Growth Variation: An Empirical Analysis of Employment, Income, Migration and Local Public Services," Working Papers e07-12, Virginia Polytechnic Institute and State University, Department of Economics. [Downloadable!]
  13. Lambert, Dayton M. & Griffin, Terry W., 2004. "Analysis Of Government Farm Subsidies On Farmland Cash Rental Rates Using A Fixed Effect Spatial Distributed Lag Model And A Translog Cost Model," 2004 Annual meeting, August 1-4, Denver, CO 19977, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  14. Hong-Ming Huang & Chihwa Kao & Giovanni Urga, 2007. "Copula-Based Tests for Cross-Sectional Independence in Panel Models," Center for Policy Research Working Papers 99, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
    Other versions:
  15. Pesaran, M. Hashem, 2004. "General Diagnostic Tests for Cross Section Dependence in Panels," IZA Discussion Papers 1240, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  16. Raymond J.G.M. Florax & Peter Nijkamp, 2003. "Misspecification in Linear Spatial Regression Models," Tinbergen Institute Discussion Papers 03-081/3, Tinbergen Institute. [Downloadable!]
  17. Fernando A. López Hernández & Coro Chasco Yrigoyen, 2004. "Space-Time Lags: Specification Strategy In Spatial Regression Models," Econometrics 0411005, EconWPA. [Downloadable!]
  18. Badi H. Baltagi & Qu Feng & Chihwa Kao, 2009. "Testing for Sphericity in a Fixed Effects Panel Data Model (Revised July 2009)," Center for Policy Research Working Papers 112, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
  19. Simonetta Longhi & Peter Nijkamp & Jacques Poot, 2004. "Spatial Heterogeneity and the Wage Curve revisited," Tinbergen Institute Discussion Papers 04-054/3, Tinbergen Institute. [Downloadable!]
    Other versions:
  20. Nicolas Debarsy & Cem Ertur, 2009. "Testing for Spatial Autocorrelation in a Fixed Effects Panel Data Model," Post-Print halshs-00414133_v1, HAL. [Downloadable!]
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