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Specification Searches in Spatial Econometrics: The Relevance of Hendry's Methodology

Author

Listed:
  • Raymond J.G.M. Florax

    (Free University)

  • Hendrik Folmer

    (Wageningen Agricultural University)

  • Sergio J. Rey

    (San Diego State University)

Abstract

This paper brings together a number of new specification search strategies in spatial econometric modeling. In the literature, experimental results for several forward stepwise strategies aimed at remedying spatial dependence, have been reported. Essentially, these strategies boil down to the expansion of a spatial linear regression model with spatially lagged variables, conditional upon the results of misspecification tests. We investigate a Hendry-like specification strategy, starting from the spatial common factor model and subsequently reducing the number of spatially lagged variables on the basis of significance tests. The experimental simulations pertain to various small to large sample sizes, with spatial processes modeled on regular lattice surfaces. Our main conclusion is that the classical forward stepwise approach outperforms the Hendry strategy in terms of finding the true data generating process as well as in the observed accuracy of the estimators for spatial and non-spatial parameters. It also dominates concurrent forward stepwise strategies recently suggested in the literature.

Suggested Citation

  • Raymond J.G.M. Florax & Hendrik Folmer & Sergio J. Rey, 2002. "Specification Searches in Spatial Econometrics: The Relevance of Hendry's Methodology," Urban/Regional 0202001, EconWPA.
  • Handle: RePEc:wpa:wuwpur:0202001
    Note: Type of Document - Latex; prepared on Linux; to print on PostScript; pages: 30 ; figures: included
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    References listed on IDEAS

    as
    1. Florax, Raymond & Folmer, Henk, 1992. "Specification and estimation of spatial linear regression models : Monte Carlo evaluation of pre-test estimators," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 405-432, September.
    2. Gilbert, Christopher L, 1986. "Professor Hendry's Econometric Methodology," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 48(3), pages 283-307, August.
    3. Blommestein, Hans J., 1983. "Specification and estimation of spatial econometric models : A discussion of alternative strategies for spatial economic modelling," Regional Science and Urban Economics, Elsevier, vol. 13(2), pages 251-270, May.
    4. P Burridge, 1981. "Testing for a Common Factor in a Spatial Autoregression Model," Environment and Planning A, , vol. 13(7), pages 795-800, July.
    5. Anselin, Luc & Bera, Anil K. & Florax, Raymond & Yoon, Mann J., 1996. "Simple diagnostic tests for spatial dependence," Regional Science and Urban Economics, Elsevier, vol. 26(1), pages 77-104, February.
    6. Anselin, Luc & Hudak, Sheri, 1992. "Spatial econometrics in practice : A review of software options," Regional Science and Urban Economics, Elsevier, vol. 22(3), pages 509-536, September.
    7. Thomas de Graaff & Raymond J.C.M. Florax & Peter Nijkamp & Aura Reggiani, 2001. "A General Misspecification Test for Spatial Regression Models: Dependence, Heterogeneity, and Nonlinearity," Journal of Regional Science, Wiley Blackwell, vol. 41(2), pages 255-276.
    8. A Getis, 1991. "Spatial Interaction and Spatial Autocorrelation: A Cross-Product Approach," Environment and Planning A, , vol. 23(9), pages 1269-1277, September.
    9. 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.
    10. Craig Brett & Joris Pinkse, 1997. "Those Taxes are all over the Map! A Test for Spatial Independence of Municipal Tax Rates in British Columbia," International Regional Science Review, , vol. 20(1-2), pages 131-151, April.
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    More about this item

    Keywords

    spatial econometrics; autocorrelation; pre-testing; specification strategy;

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods

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