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Dynamic Panel Data Models Featuring Endogenous Interaction and Spatially Correlated Errors

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Author Info

  • Jacobs, J.P.A.M.
  • Ligthart, J.E.
  • Vrijburg, H.

    (Tilburg University, Center for Economic Research)

Abstract

We extend the three-step generalized methods of moments (GMM) approach of Kapoor, Kelejian, and Prucha (2007), which corrects for spatially correlated errors in static panel data models, by introducing a spatial lag and a one-period lag of the dependent variable as additional explanatory variables. Combining the extended Kapoor, Kelejian, and Prucha (2007) approach with the dynamic panel data model GMM estimators of Arellano and Bond (1991) and Blundell and Bond (1998) and supplementing the dynamic instruments by lagged and weighted exogenous variables as suggested by Kelejian and Robinson (1993) yields new spatial dynamic panel data estimators. The performance of these spatial dynamic panel data estimators is in- vestigated by means of Monte Carlo simulations. We show that differences in bias as well as root mean squared error between spatial GMM estimates and corresponding GMM estimates in which spatial error correlation is ignored are small.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2009-92.

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Date of creation: 2009
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Handle: RePEc:dgr:kubcen:200992

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Web page: http://center.uvt.nl

Related research

Keywords: Dynamic panel models; spatial lag; spatial error; GMM estimation;

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Cited by:
  1. Badi H. Baltagi & Bernard Fingleton & Alain Pirotte, 2011. "Estimating and Forecasting with a Dynamic Spatial Panel Data Model," SERC Discussion Papers 0095, Spatial Economics Research Centre, LSE.
  2. Zheng, Xinye & Li, Fanghua & Song, Shunfeng & Yu, Yihua, 2013. "Central Government's Infrastructure Investment across Chinese Regions: A Dynamic Spatial Panel Data Approach," MPRA Paper 50407, University Library of Munich, Germany.
  3. David Bartolini & Raffaella Santolini, 2012. "Political yardstick competition among Italian municipalities on spending decisions," The Annals of Regional Science, Springer, vol. 49(1), pages 213-235, August.
  4. J. Elhorst, 2012. "Dynamic spatial panels: models, methods, and inferences," Journal of Geographical Systems, Springer, vol. 14(1), pages 5-28, January.

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