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Spatial econometric STAR models: Lagrange multiplier tests, Monte Carlo simulations and an empirical application

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  • Pede, Valerien O.
  • Florax, Raymond J.G.M.
  • Lambert, Dayton M.

Abstract

This paper investigates nonlinearity in parametric spatial process models that incorporate regime-switching by means of a smooth transition autoregressive process. We derive a Lagrange Multiplier (LM) test for nonlinearity as well as several joint LM tests for nonlinearity and the traditional spatial processes of autoregressive errors and an erroneously omitted spatially lagged dependent variable. Monte Carlo simulations demonstrate the size and power of the tests in finite samples. In an empirical application, we demonstrate that the suggested approach can be used to test for spatial heterogeneity in the form of spatial regimes or for the appropriateness of the spatial cross-regressive model containing spatially lagged exogenous variables.

Suggested Citation

  • Pede, Valerien O. & Florax, Raymond J.G.M. & Lambert, Dayton M., 2014. "Spatial econometric STAR models: Lagrange multiplier tests, Monte Carlo simulations and an empirical application," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 118-128.
  • Handle: RePEc:eee:regeco:v:49:y:2014:i:c:p:118-128
    DOI: 10.1016/j.regsciurbeco.2014.07.001
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    Cited by:

    1. Di Caro, Paolo, 2014. "Testing and explaining economic resilience with an application to Italian regions," MPRA Paper 60298, University Library of Munich, Germany.
    2. repec:gam:jsusta:v:9:y:2017:i:8:p:1359-:d:106767 is not listed on IDEAS
    3. Thanos, Sotirios & Dubé, Jean & Legros, Diègo, 2016. "Putting time into space: the temporal coherence of spatial applications in the housing market," Regional Science and Urban Economics, Elsevier, vol. 58(C), pages 78-88.
    4. repec:bla:presci:v:96:y:2017:i:1:p:93-113 is not listed on IDEAS
    5. Xu, Wan & Khachatryan, Hayk, 2013. "The Impact of Integrated Pest Management Practices on U.S. National Nursery Industry Annul Sales Revenue: An Application of Smooth Transition Spatial Autoregressive Models," 2013 Annual Meeting, February 2-5, 2013, Orlando, Florida 142961, Southern Agricultural Economics Association.
    6. Tsusaka, Takuji W. & Kajisa, Kei & Pede, Valerien O. & Aoyagi, Keitaro, 2015. "Neighborhood effects and social behavior: The case of irrigated and rainfed farmers in Bohol, the Philippines," Journal of Economic Behavior & Organization, Elsevier, vol. 118(C), pages 227-246.

    More about this item

    Keywords

    Spatial econometrics; Nonlinearity; Autoregressive smooth transition;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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