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The Mundlak Spatial Estimator

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Abstract

The spatial Mundlak model first considered by Debarsy (2012) is an alternative to fixed effects and random effects estimation for spatial panel data models. Mundlak modelled the correlated random individual effects as a linear combination of the averaged regressors over time plus a random time-invariant error. This paper shows that if spatial correlation is present whether spatial lag or spatial error or both, the standard Mundlak result in panel data does not hold and random effects does not reduce to its fixed effects counterpart. However, using maximum likelihood one can still estimate these spatial Mundlak models and test the correlated random effects specification of Mundlak using Likelihood ratio tests as demonstrated by Debarsy for the Mundlak spatial Durbin model.

Suggested Citation

  • Badi H. Baltagi, 2023. "The Mundlak Spatial Estimator," Center for Policy Research Working Papers 258, Center for Policy Research, Maxwell School, Syracuse University.
    • Handle: RePEc:max:cprwps:258
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    File URL: https://surface.syr.edu/cpr/476/
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    1. Edoardo Baldoni & Roberto Esposti, 2025. "The impact of environmental policies on adopters under general interference. The case of EU support to organic farming," Working Papers 497, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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