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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)

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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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Publisher 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
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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://129.3.20.41

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

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Find related papers by JEL classification:
C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Hypothesis Testing
C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Estimation
C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
R15 - Urban, Rural, and Regional Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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