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Testing for Heteroskedasticity and Spatial Correlation in a Random Effects Panel Data Model

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Abstract

A panel data regression model with heteroskedastic as well as spatially correlated disturbance is considered, and a joint LM test for homoskedasticity and no spatial correlation is derived. In addition, a conditional LM test for no spatial correlation given heteroskedasticity, as well as a conditional LM test for homoskedasticity given spatial correlation, are also deerived. These LM tests are compared with marginal LM tests that ignore heteroskedasticity in testing for spatial correlation, or spatial correlation in testing for homoskedasticity. Monte Carlo results show that these LM tests as well as their LR counterparts perform well even for small N and T. However, misleading inference can occur when using marginal rather than joint or conditional LM tests when spatial correlation or heteroskedasticity is present.

Suggested Citation

  • Badi H. Baltagi & Seuck Heun Song & Jae Hyeok Kwon, 2008. "Testing for Heteroskedasticity and Spatial Correlation in a Random Effects Panel Data Model," Center for Policy Research Working Papers 108, Center for Policy Research, Maxwell School, Syracuse University.
    • Handle: RePEc:max:cprwps:108
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    Cited by:

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    3. Jieun Lee, 2022. "Testing Endogeneity of Spatial Weights Matrices in Spatial Dynamic Panel Data Models," Papers 2209.05563, arXiv.org.
    4. Kouassi, Eugene & Mougoué, Mbodja & Sango, Joel & Bosson Brou, J.M. & Amba, Claude M.O. & Salisu, Afeez Adebare, 2014. "Testing for heteroskedasticity and spatial correlation in a two way random effects model," Computational Statistics & Data Analysis, Elsevier, vol. 70(C), pages 153-171.
    5. Markus Eberhardt & Francis Teal, 2011. "Econometrics For Grumblers: A New Look At The Literature On Cross‐Country Growth Empirics," Journal of Economic Surveys, Wiley Blackwell, vol. 25(1), pages 109-155, February.
    6. Trnkova, Gabriela & Mala, Zdenka & Vasilenko, Alexandr, 2012. "Analysis of the Effects of Subsidies on the Economic Behavior of Agricultural Businesses Focusing on Animal Production," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 4(4 Special), pages 1-12, December.
    7. Anil K. Bera & Osman Doğan & Süleyman Taşpınar & Monalisa Sen, 2020. "Specification tests for spatial panel data models," Journal of Spatial Econometrics, Springer, vol. 1(1), pages 1-39, December.
    8. Baltagi, Badi H. & Jung, Byoung Cheol & Song, Seuck Heun, 2010. "Testing for heteroskedasticity and serial correlation in a random effects panel data model," Journal of Econometrics, Elsevier, vol. 154(2), pages 122-124, February.
    9. Alain Pirotte & Jesús Mur, 2017. "Neglected dynamics and spatial dependence on panel data: consequences for convergence of the usual static model estimators," Spatial Economic Analysis, Taylor & Francis Journals, vol. 12(2-3), pages 202-229, July.
    10. Merkel, Axel, 2017. "Spatial competition and complementarity in European port regions," Journal of Transport Geography, Elsevier, vol. 61(C), pages 40-47.
    11. Maly, Michal & Mala, Zdenka & Sobrova, L. & Halova, P., 2011. "Partial equilibrium model of Czech beef trade," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 3(2), pages 1-12, June.
    12. LeSage, James & Banerjee, Sudipto & Fischer, Manfred M. & Congdon, Peter, 2009. "Spatial statistics: Methods, models & computation," Computational Statistics & Data Analysis, Elsevier, vol. 53(8), pages 2781-2785, June.
    13. Giuseppe Arbia, 2011. "A Lustrum of SEA: Recent Research Trends Following the Creation of the Spatial Econometrics Association (2007--2011)," Spatial Economic Analysis, Taylor & Francis Journals, vol. 6(4), pages 377-395, July.
    14. Bedoya-Maya, Felipe & Beckers, Joris & van Hassel, Edwin, 2023. "Spillover effects from inland waterway transport development: Spatial assessment of the Rhine-Alpine Corridor," Journal of Transport Geography, Elsevier, vol. 113(C).
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    17. Kuersteiner, Guido M. & Prucha, Ingmar R., 2013. "Limit theory for panel data models with cross sectional dependence and sequential exogeneity," Journal of Econometrics, Elsevier, vol. 174(2), pages 107-126.

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    More about this item

    Keywords

    Panel data; heteroskedasticity; spatial correlation; Lagrange multiplier tests; random effects;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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