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Estimation of the Spatial Weights Matrix under Structural Constraints

  • Arnab Bhattacharjee
  • Chris Jensen-Butler

While estimates of models with spatial interaction are very sensitive to the choice of spatial weights, considerable uncertainty surrounds definition of spatial weights in most studies with cross-section dependence. We show that, in the spatial error model the spatial weights matrix is only partially identified, and is fully identified under the structural constraint of symmetry. For the spatial error model, we propose a new methodology for estimation of spatial weights under the assumption of symmetric spatial weights, with extensions to other important spatial models. The methodology is applied to regional housing markets in the UK, providing an estimated spatial weights matrix that generates several new hypotheses about the economic and socio-cultural drivers of spatial diffusion in housing demand.

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File URL: http://www.dundee.ac.uk/media/dundeewebsite/economicstudies/documents/discussion/DDPE_254.pdf
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Paper provided by Economic Studies, University of Dundee in its series Dundee Discussion Papers in Economics with number 254.

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Length: 45 pages
Date of creation: Jun 2011
Date of revision:
Handle: RePEc:dun:dpaper:254
Contact details of provider: Postal: Dundee, DD1 4HN
Phone: (01382) 344375
Fax: (01382) 344691
Web page: http://www.dundee.ac.uk/econman/
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