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Spatial fixed effects and spatial dependence in a single cross†section

Author

Listed:
  • Anselin, Luc
  • Arribas-Bel, Daniel

Abstract

We investigate the common conjecture in applied econometric work that the inclusion of spatial fixed effects in a regression specification for a single cross†sectional data set removes spatial dependence. We demonstrate analytically and by means of a series of simulation experiments how evidence of the removal of spatial autocorrelation by spatial fixed effects may be spurious when the true data generating processes (DGP) takes the form of a spatial lag or spatial error dependence. In addition, we also show that spatial fixed effects correctly remove spatial correlation only in the special case where the dependence is group†wise, with all observations in the same group as neighbours of each other.

Suggested Citation

Handle: RePEc:eee:paresc:v:92:y:2013:i:1:p:3-18
DOI: 10.1111/j.1435-5957.2012.00480.x
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JEL classification:

  • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
  • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
  • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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