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Specification Searches in Spatial Econometrics: The Relevance of Hendry's Methodology

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Author Info

  • Raymond J.G.M. Florax

    (Free University)

  • Hendrik Folmer

    (Wageningen Agricultural University)

  • Sergio J. Rey

    (San Diego State University)

Abstract

This paper brings together a number of new specification search strategies in spatial econometric modeling. In the literature, experimental results for several forward stepwise strategies aimed at remedying spatial dependence, have been reported. Essentially, these strategies boil down to the expansion of a spatial linear regression model with spatially lagged variables, conditional upon the results of misspecification tests. We investigate a Hendry-like specification strategy, starting from the spatial common factor model and subsequently reducing the number of spatially lagged variables on the basis of significance tests. The experimental simulations pertain to various small to large sample sizes, with spatial processes modeled on regular lattice surfaces. Our main conclusion is that the classical forward stepwise approach outperforms the Hendry strategy in terms of finding the true data generating process as well as in the observed accuracy of the estimators for spatial and non-spatial parameters. It also dominates concurrent forward stepwise strategies recently suggested in the literature.

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Bibliographic Info

Paper provided by EconWPA in its series Urban/Regional with number 0202001.

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Length: 30 pages
Date of creation: 08 Feb 2002
Date of revision:
Handle: RePEc:wpa:wuwpur:0202001

Note: Type of Document - Latex; prepared on Linux; to print on PostScript; pages: 30 ; figures: included
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Web page: http://128.118.178.162

Related research

Keywords: spatial econometrics; autocorrelation; pre-testing; specification strategy;

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References

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  1. 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.
  2. Bera, Anil K. & Yoon, Mann J., 1993. "Specification Testing with Locally Misspecified Alternatives," Econometric Theory, Cambridge University Press, vol. 9(04), pages 649-658, August.
  3. Blommestein, Hans J., 1983. "Specification and estimation of spatial econometric models : A discussion of alternative strategies for spatial economic modelling," Regional Science and Urban Economics, Elsevier, vol. 13(2), pages 251-270, May.
  4. Florax, Raymond & Folmer, Henk, 1992. "Specification and estimation of spatial linear regression models : Monte Carlo evaluation of pre-test estimators," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 405-432, September.
  5. Anselin, Luc & Hudak, Sheri, 1992. "Spatial econometrics in practice : A review of software options," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 509-536, September.
  6. Gilbert, Christopher L, 1986. "Professor Hendry's Econometric Methodology," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 283-307, August.
  7. Thomas de Graaff & Raymond J.C.M. Florax & Peter Nijkamp & Aura Reggiani, 2001. "A General Misspecification Test for Spatial Regression Models: Dependence, Heterogeneity, and Nonlinearity," Journal of Regional Science, Wiley Blackwell, vol. 41(2), pages 255-276.
  8. P Burridge, 1981. "Testing for a common factor in a spatial autoregression model," Environment and Planning A, Pion Ltd, London, vol. 13(7), pages 795-800, July.
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