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The Likelihood Ratio Test of Common Factors under Non-Ideal Conditions

Author

Listed:
  • Angulo, Ana M.

    () (Department of Economic Analysis. University of Zaragoza)

  • Mur, Jesús

    () (Department of Economic Analysis. University of Zaragoza)

Abstract

The Spatial Durbin model occupies an interesting position in SpatialEconometrics. It is the reduced form of a model with cross-sectional dependencein the errors and it may be used as the nesting equation in a more general approachof model selection. Specifically, in this equation we can obtain the Likelihood Ratiotest of Common Factors (LRCOM). This test has good properties if the model iscorrectly specified, as shown in Mur and Angulo (2006). However, as far as weknow, there is no literature in relation to the behaviour of the test under non-idealconditions, which is the purpose of the paper. Specifically, we study the performanceof the test in the case of heteroscedasticity, non-normality, endogeneity,dense weighting matrices and non-linearity. Our results offer a positive view of theLikelihood Ratio test of Common Factors, which appears to be a useful techniquein the toolbox of spatial econometrics.

Suggested Citation

  • Angulo, Ana M. & Mur, Jesús, 2011. "The Likelihood Ratio Test of Common Factors under Non-Ideal Conditions," INVESTIGACIONES REGIONALES - Journal of REGIONAL RESEARCH, Asociación Española de Ciencia Regional, issue 21, pages 37-52.
  • Handle: RePEc:ris:invreg:0030
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    References listed on IDEAS

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    1. Göran Therborn & K.C. Ho, 2009. "Introduction," City, Taylor & Francis Journals, vol. 13(1), pages 53-62, March.
    2. Florax, Raymond J. G. M. & Folmer, Hendrik & Rey, Sergio J., 2003. "Specification searches in spatial econometrics: the relevance of Hendry's methodology," Regional Science and Urban Economics, Elsevier, vol. 33(5), pages 557-579, September.
    3. 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.
    4. David F. Hendry & Hans-Martin Krolzig, 2005. "The Properties of Automatic "GETS" Modelling," Economic Journal, Royal Economic Society, vol. 115(502), pages 32-61, March.
    5. J. Barkley Rosser, 2009. "Introduction," Chapters,in: Handbook of Research on Complexity, chapter 1 Edward Elgar Publishing.
    6. P Burridge, 1981. "Testing for a Common Factor in a Spatial Autoregression Model," Environment and Planning A, , vol. 13(7), pages 795-800, July.
    7. James LeSage & R. Kelley Pace, 2010. "Spatial Econometrics," Book Chapters,in: Web Book of Regional Science Regional Research Institute, West Virginia University.
    8. Jesús Mur & Ana Angulo, 2006. "The Spatial Durbin Model and the Common Factor Tests," Spatial Economic Analysis, Taylor & Francis Journals, vol. 1(2), pages 207-226.
    9. J. Elhorst, 2010. "Applied Spatial Econometrics: Raising the Bar," Spatial Economic Analysis, Taylor & Francis Journals, vol. 5(1), pages 9-28.
    10. Hendry, David F, 1980. "Econometrics-Alchemy or Science?," Economica, London School of Economics and Political Science, vol. 47(188), pages 387-406, November.
    11. Danilov, Dmitry & Magnus, J.R.Jan R., 2004. "On the harm that ignoring pretesting can cause," Journal of Econometrics, Elsevier, vol. 122(1), pages 27-46, September.
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    Citations

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    Cited by:

    1. Michael Berlemann & Vera Jahn, 2016. "Regional Importance of Mittelstand Firms and Innovation Performance," Regional Studies, Taylor & Francis Journals, vol. 50(11), pages 1819-1833, November.
    2. Jahn, Vera, 2015. "The Importance of Mittelstand Firms for Regional Apprenticeship Activity - Lessons for Policy -," Working Paper 158/2015, Helmut Schmidt University, Hamburg.
    3. Hansen, Winslow D. & Naughton, Helen T., 2013. "The effects of a spruce bark beetle outbreak and wildfires on property values in the wildland–urban interface of south-central Alaska, USA," Ecological Economics, Elsevier, vol. 96(C), pages 141-154.
    4. Jahn, Vera, 2017. "The Importance of Mittelstand Firms for Regional Apprenticeship Activity," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168260, Verein für Socialpolitik / German Economic Association.
    5. Carlos Daniel Navarro, 2015. "Migración y Desempleo: Un análisis espacial para el Noroeste Argentino," Working Papers 14, Instituto de Estudios Laborales y del Desarrollo Económico (IELDE) - Universidad Nacional de Salta - Facultad de Ciencias Económicas, Jurídicas y Sociales.

    More about this item

    Keywords

    Likelihood Ratio Test of Common Factor; Heteroscedasticity; Nonnormality; Endogeneity; Non-linearity;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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