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The Speed of Income Convergence in Europe: A case for Bayesian Model Averaging with Eigenvector Filtering

Listed author(s):
  • Florian Schoiswohl


  • Philipp Piribauer
  • Michael Gmeinder
  • Matthias Koch


  • Manfred Fischer


The speed of income convergence in Europe remains one of the hot topics in regional economics. Recently Bayesian Model Averaging (BMA) applied to spatial autoregressive models seems to have gained more popularity. BMA averages over some predetermined number of so called top models, ranked by the model's posterior likelihood. We regard two approaches for especially noteworthy: First Crespo-Cuaresma and Feldkircher (2012) employ BMA to a spatial autoregressive model, where spatial eigenvector filtering is used in order to tackle the econometric problems caused by the spatial lag. However, spatial filtering has its drawbacks. It relies on a model approximation and no partial derivatives of interest associated with the model can be computed. This means, that it is impossible to derive direct and indirect effects. Second LeSage and Fischer (2008) rely on BMA applied to a Spatial Durbin Model (SDM), where the model posterior is calculated without any model approximation. Although it can be computationally burdensome, it allows for a proper model interpretation if the underlying data generating process (DGP) is of SDM form. One virtue of spatial filtering, as shown by Pace et al. (2011), is that it estimates some of the model coefficients efficiently for various spatial autocorrelated DGPs. Hence, the likelihoods associated with spatial filtering are more robust against model misspecification. Since our preliminary results show that the top models' (posterior) likelihoods obtained from a spatial filtering BMA exercise and (non spatial filtering) BMA applied to a Spatial Durbin Model differ, it is most likely that the DGP is not of SDM form, i.e. misspecified. This leads us to the conclusion that, even though the methodology employed by Crespo-Cuaresma and Feldkircher (2012) cannot be used for a proper model interpretation, the results obtained by spatial filtering BMA do not suffer from model misspecification. References: Crespo-Cuaresma, J., Feldkircher, M. (2012), `Spatial Filtering, Model Uncertainty and the Speed of Income Convergence in Europe', Journal of Applied Econometrics, forthcoming. LeSage, J., Fischer, M. (2008), `Spatial Growth Regressions, Model Specification, Estimation, and Interpretation', Spatial Economic Analysis 3, 275-304. Pace, R., LeSage, J., Zhu, S. (2011), `Interpretation and Computation of Estimates from Regression Models using Spatial Filtering', written for Spatial Econometrics Association 2011. Keywords: Model uncertainty, spatial filtering, determinants of economic growth, European regions. JEL Classi cations: C11, C21, O11, R11

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Paper provided by European Regional Science Association in its series ERSA conference papers with number ersa12p744.

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Date of creation: Oct 2012
Handle: RePEc:wiw:wiwrsa:ersa12p744
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  1. Jesús Crespo Cuaresma & Martin Feldkircher, 2013. "Spatial Filtering, Model Uncertainty And The Speed Of Income Convergence In Europe," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 28(4), pages 720-741, June.
  2. Fernandez, Carmen & Ley, Eduardo & Steel, Mark F. J., 2001. "Benchmark priors for Bayesian model averaging," Journal of Econometrics, Elsevier, vol. 100(2), pages 381-427, February.
  3. James Lesage & Manfred Fischer, 2008. "Spatial Growth Regressions: Model Specification, Estimation and Interpretation," Spatial Economic Analysis, Taylor & Francis Journals, vol. 3(3), pages 275-304.
  4. Michael Tiefelsdorf & Daniel A Griffith, 2007. "Semiparametric filtering of spatial autocorrelation: the eigenvector approach," Environment and Planning A, Pion Ltd, London, vol. 39(5), pages 1193-1221, May.
  5. Carmen Fernandez & Eduardo Ley & Mark F. J. Steel, 2001. "Model uncertainty in cross-country growth regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(5), pages 563-576.
  6. Jesús Crespo Cuaresma & Gernot Doppelhofer & Martin Feldkircher, 2014. "The Determinants of Economic Growth in European Regions," Regional Studies, Taylor & Francis Journals, vol. 48(1), pages 44-67, January.
  7. Olivier Parent & James Lesage, 2005. "Bayesian Model Averaging for Spatial Econometric Models," Post-Print hal-00375489, HAL.
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