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Robust LM tests for spatial dynamic panel data models

Author

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  • Bera, Anil K.
  • Doğan, Osman
  • Taşpınar, Süleyman
  • Leiluo, Yufan

Abstract

In this study, we introduce adjusted Rao's score test statistics (Lagrange multiplier (LM) tests) for a spatial dynamic panel data (SDPD) model that includes a contemporaneous spatial lag, a time lag and a spatial-time lag. The maximum likelihood estimator for the estimation of SDPD models can have asymptotic bias because of individual and time fixed effects. Bias arises since the limiting distributions of the score functions derived from the corresponding concentrated log-likelihood functions are not centered on zero. First, we show how the score functions should be adjusted to avoid the effect of asymptotic bias on the standard LM test statistics. Second, we further adjust score functions such that the resulting LM test statistics are valid when there is local parametric misspecification in the alternative model. Our adjusted LM test statistics can be used to test the presence of the contemporaneous spatial lag, time lag and spatial-time lag in an SDPD model. In a Monte Carlo study, we demonstrate that our suggested test statistics have good finite sample size and power properties. Finally, we illustrate implementation of these tests in an application on public capital productivity in 48 contiguous US states.

Suggested Citation

  • Bera, Anil K. & Doğan, Osman & Taşpınar, Süleyman & Leiluo, Yufan, 2019. "Robust LM tests for spatial dynamic panel data models," Regional Science and Urban Economics, Elsevier, vol. 76(C), pages 47-66.
    • Handle: RePEc:eee:regeco:v:76:y:2019:i:c:p:47-66
    DOI: 10.1016/j.regsciurbeco.2018.08.001
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    Citations

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    Cited by:

    1. Jieun Lee, 2022. "Testing Endogeneity of Spatial Weights Matrices in Spatial Dynamic Panel Data Models," Papers 2209.05563, arXiv.org.
    2. Doğan, Osman & Taşpınar, Süleyman & Bera, Anil K., 2021. "A Bayesian robust chi-squared test for testing simple hypotheses," Journal of Econometrics, Elsevier, vol. 222(2), pages 933-958.
    3. Subhash C. Sharma & Anil K. Bera, 2021. "Estimation of Random Components and Prediction in One and Two-Way Error Component Regression Models," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(1), pages 419-441, December.
    4. Hasan Engin Duran & Andrzej Cieślik, 2021. "The distribution of city sizes in Turkey: A failure of Zipf’s law due to concavity," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(5), pages 1702-1719, October.
    5. Hasan Engin Duran & Burak Dindaroğlu, 2021. "Regional inflation persistence in Turkey," Growth and Change, Wiley Blackwell, vol. 52(1), pages 460-491, March.
    6. Ye Yang & Osman Doğan & Süleyman Taşpınar, 2023. "Observed-data DIC for spatial panel data models," Empirical Economics, Springer, vol. 64(3), pages 1281-1314, March.

    More about this item

    Keywords

    Spatial dynamic panel data model; SDPD; Rao's score tests; LM tests; MLE; Spatial dependence; Robust LM tests;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • 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

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