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A Robust LM Test for Spatial Error Components

  • Zhenlin Yang

    ()

    (School of Economics, Singapore Management University)

This paper presents a modified LM test of spatial error components, which is shown to be robust against distributional misspecifications and spatial layouts. The proposed test differs from the LM test of Anselin (2001) by a term in the denominators of the test statistics. This term disappears when either the errors are normal, or the variance of the diagonal elements of the product of spatial weights matrix and its transpose is zero or approaching to zero as sample size goes large. When neither is true, as is often the case in practice, the effect of this term can be significant even when sample size is large. As a result, there can be severe size distortions of the Anselin’s LM test, a phenomenon revealed by the Monte Carlo results of Anselin and Moreno (2003) and further confirmed by the Monte Carlo results presented in this paper. Our Monte Carlo results also show that the proposed test performs well in general.

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Paper provided by Singapore Management University, School of Economics in its series Working Papers with number 04-2009.

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Length: 19 pages
Date of creation: Jan 2009
Date of revision:
Publication status: Published in SMU Economics and Statistics Working Paper Series
Handle: RePEc:siu:wpaper:04-2009
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Web page: http://www.economics.smu.edu.sg/

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  1. Kelejian, Harry H & Prucha, Ingmar R, 1999. "A Generalized Moments Estimator for the Autoregressive Parameter in a Spatial Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(2), pages 509-33, May.
  2. Lee, Lung-fei, 2007. "Identification and estimation of econometric models with group interactions, contextual factors and fixed effects," Journal of Econometrics, Elsevier, vol. 140(2), pages 333-374, October.
  3. Anil K. Bera & Walter Sosa Escudero & Mann Yoon, 2000. "Tests for the Error Component Model in the Presence of Local Misspecification," Econometric Society World Congress 2000 Contributed Papers 1888, Econometric Society.
  4. Luc Anselin & Rosina Moreno, 2001. "Properties of tests for spatial error components," ERSA conference papers ersa01p183, European Regional Science Association.
  5. Bera, Anil K. & Yoon, Mann J., 1993. "Specification Testing with Locally Misspecified Alternatives," Econometric Theory, Cambridge University Press, vol. 9(04), pages 649-658, August.
  6. Koenker, Roger, 1981. "A note on studentizing a test for heteroscedasticity," Journal of Econometrics, Elsevier, vol. 17(1), pages 107-112, September.
  7. H. Kelejian, Harry & Prucha, Ingmar R., 2001. "On the asymptotic distribution of the Moran I test statistic with applications," Journal of Econometrics, Elsevier, vol. 104(2), pages 219-257, September.
  8. Lung-Fei Lee, 2004. "Asymptotic Distributions of Quasi-Maximum Likelihood Estimators for Spatial Autoregressive Models," Econometrica, Econometric Society, vol. 72(6), pages 1899-1925, November.
  9. Lee, Lung-Fei, 2002. "Consistency And Efficiency Of Least Squares Estimation For Mixed Regressive, Spatial Autoregressive Models," Econometric Theory, Cambridge University Press, vol. 18(02), pages 252-277, April.
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