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Spatial Dynamic Panel Model and System GMM: A Monte Carlo Investigation

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Author Info
Kukenova, Madina
Monteiro, Jose-Antonio

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Abstract

This paper investigates the finite sample properties of estimators for spatial dynamic panel models in the presence of several endogenous variables. So far, none of the available estimators in spatial econometrics allows considering spatial dynamic models with one or more endogenous variables. We propose to apply system-GMM, since it can correct for the endogeneity of the dependent variable, the spatial lag as well as other potentially endogenous variables using internal and/or external instruments. The Monte-Carlo investigation compares the performance of spatial MLE, spatial dynamic MLE (Elhorst (2005)), spatial dynamic QMLE (Yu et al. (2008)), LSDV, difference-GMM (Arellano & Bond (1991)), as well as extended-GMM (Arellano & Bover (1995), Blundell & Bover (1998)) in terms of bias, root mean squared error and standard-error accuracy. The results suggest that, in order to account for the endogeneity of several covariates, spatial dynamic panel models should be estimated using extended GMM. On a practical ground, this is also important, because system-GMM avoids the inversion of high dimension spatial weights matrices, which can be computationally unfeasible for large N and/or T.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13404.

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Date of creation: Jul 2008
Date of revision: Feb 2009
Handle: RePEc:pra:mprapa:13404

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Related research
Keywords: Spatial Econometrics; Dynamic Panel Model; System GMM; Monte Carlo Simulations;

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Find related papers by JEL classification:
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data

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References listed on IDEAS
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. Kelejian, Harry H & Prucha, Ingmar R, 1999. "A Generalized Moments Estimator for the Autoregressive Parameter in a Spatial Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 509-33, May.
  2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  3. Peter Phillips & Hyungsik Moon, 2000. "Nonstationary panel data analysis: an overview of some recent developments," Econometric Reviews, Taylor and Francis Journals, vol. 19(3), pages 263-286. [Downloadable!] (restricted)
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  4. Yu, Jihai & de Jong, Robert & Lee, Lung-fei, 2008. "Quasi-maximum likelihood estimators for spatial dynamic panel data with fixed effects when both n and T are large," Journal of Econometrics, Elsevier, vol. 146(1), pages 118-134, September. [Downloadable!] (restricted)
  5. Kapoor, Mudit & Kelejian, Harry H. & Prucha, Ingmar R., 2007. "Panel data models with spatially correlated error components," Journal of Econometrics, Elsevier, vol. 140(1), pages 97-130, September. [Downloadable!] (restricted)
  6. Blonigen, Bruce A. & Davies, Ronald B. & Waddell, Glen R. & Naughton, Helen T., 2007. "FDI in space: Spatial autoregressive relationships in foreign direct investment," European Economic Review, Elsevier, vol. 51(5), pages 1303-1325, July. [Downloadable!] (restricted)
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  7. Martial Foucault & Thierry Madies & Sonia Paty, 2008. "Public spending interactions and local politics. Empirical evidence from French municipalities," Public Choice, Springer, vol. 137(1), pages 57-80, October. [Downloadable!] (restricted)
  8. Michael Beenstock & Daniel Felsenstein, 2007. "Spatial Vector Autoregressions," Spatial Economic Analysis, Taylor and Francis Journals, vol. 2(2), pages 167-196. [Downloadable!] (restricted)
  9. Kelejian, Harry H & Prucha, Ingmar R, 1998. "A Generalized Spatial Two-Stage Least Squares Procedure for Estimating a Spatial Autoregressive Model with Autoregressive Disturbances," The Journal of Real Estate Finance and Economics, Springer, vol. 17(1), pages 99-121, July. [Downloadable!] (restricted)
  10. Bernard Fingleton & Julie Le Gallo, 2008. "Estimating spatial models with endogenous variables, a spatial lag and spatially dependent disturbances: Finite sample properties," Papers in Regional Science, Blackwell Publishing, vol. 87(3), pages 319-339, 08. [Downloadable!] (restricted)
  11. Keller, Wolfgang & Shiue, Carol H., 2007. "The origin of spatial interaction," Journal of Econometrics, Elsevier, vol. 140(1), pages 304-332, September. [Downloadable!] (restricted)
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  12. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August. [Downloadable!] (restricted)
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  13. Badi H. Baltagi & Chihwa Kao, 2000. "Nonstationary Panels, Cointegration in Panels and Dynamic Panels: A Survey," Center for Policy Research Working Papers 16, Center for Policy Research, Maxwell School, Syracuse University. [Downloadable!]
  14. Bruce A. Blonigen & Ronald B. Davies & Helen T. Naughton & Glen R. Waddell, 2005. "Spacey Parents: Spatial Autoregressive Patterns in Inbound FDI," NBER Working Papers 11466, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, vol. 140(1), pages 260-281, September. [Downloadable!] (restricted)
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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. Eckhardt Bode & Peter Nunnenkamp & Andreas Waldkirch, 2009. "Spatial Effects of Foreign Direct Investment in US States," Kiel Working Papers 1535, Kiel Institute for the World Economy. [Downloadable!]
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