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

Listed author(s):
  • Angulo, Ana M.

    ()

    (Department of Economic Analysis. University of Zaragoza)

  • Mur, Jesús

    ()

    (Department of Economic Analysis. University of Zaragoza)

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.

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Article provided by Asociación Española de Ciencia Regional in its journal Investigaciones Regionales.

Volume (Year): (2011)
Issue (Month): 21 ()
Pages: 37-52

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Handle: RePEc:ris:invreg:0030
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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. James LeSage & R. Kelley Pace, 2010. "Spatial Econometrics," Book Chapters,in: Web Book of Regional Science Regional Research Institute, West Virginia University.
  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, 03.
  5. 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.
  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. 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.
  8. J. Elhorst, 2010. "Applied Spatial Econometrics: Raising the Bar," Spatial Economic Analysis, Taylor & Francis Journals, vol. 5(1), pages 9-28.
  9. Hendry, David F, 1980. "Econometrics-Alchemy or Science?," Economica, London School of Economics and Political Science, vol. 47(188), pages 387-406, November.
  10. J. Barkley Rosser, 2009. "Introduction," Chapters,in: Handbook of Research on Complexity, chapter 1 Edward Elgar Publishing.
  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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