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Testing for Spatial Autocorrelation in a Fixed Effects Panel Data Model

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  • Nicolas DEBARSY (CERPE De Namur)
  • Cem ERTUR

Abstract

The aim of this paper is to assess the relevance of spatial autocorrelation in a fixed effects panel data model and in the affirmative, to identify the most appropriate spatial specification as this appears to be a crucial point from the modeling perspective of interactive heterogeneity. Several LM test statistics as well as their LR counterparts, which allow discriminating between endogenous spatial lag versus spatially autocorrelated errors, are therefore proposed. Monte Carlo experiments show their good finite sample performance. Finally, an empirical application is provided in the framework of the well-known Feldstein-Horioka puzzle.
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  • Nicolas DEBARSY (CERPE De Namur) & Cem ERTUR, 2009. "Testing for Spatial Autocorrelation in a Fixed Effects Panel Data Model," LEO Working Papers / DR LEO 1546, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
  • Handle: RePEc:leo:wpaper:1546
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