Next Article in Journal
Forecast Combination under Heavy-Tailed Errors
Next Article in Special Issue
Spatial Econometrics: A Rapidly Evolving Discipline
Previous Article in Journal
Forecasting Interest Rates Using Geostatistical Techniques
Previous Article in Special Issue
Measurement Errors Arising When Using Distances in Microeconometric Modelling and the Individuals’ Position Is Geo-Masked for Confidentiality
Open AccessArticle

Testing in a Random Effects Panel Data Model with Spatially Correlated Error Components and Spatially Lagged Dependent Variables

by Ming He 1,* and Kuan-Pin Lin 2
1
Department of Economics, University of Washington, Seattle, WA 98195, USA
2
Department of Economics, Portland State University, Portland, OR 97201, USA
*
Author to whom correspondence should be addressed.
Academic Editor: Kerry Patterson
Econometrics 2015, 3(4), 761-796; https://doi.org/10.3390/econometrics3040761
Received: 6 August 2015 / Revised: 18 October 2015 / Accepted: 26 October 2015 / Published: 9 November 2015
(This article belongs to the Special Issue Spatial Econometrics)
We propose a random effects panel data model with both spatially correlated error components and spatially lagged dependent variables. We focus on diagnostic testing procedures and derive Lagrange multiplier (LM) test statistics for a variety of hypotheses within this model. We first construct the joint LM test for both the individual random effects and the two spatial effects (spatial error correlation and spatial lag dependence). We then provide LM tests for the individual random effects and for the two spatial effects separately. In addition, in order to guard against local model misspecification, we derive locally adjusted (robust) LM tests based on the Bera and Yoon principle (Bera and Yoon, 1993). We conduct a small Monte Carlo simulation to show the good finite sample performances of these LM test statistics and revisit the cigarette demand example in Baltagi and Levin (1992) to illustrate our testing procedures. View Full-Text
Keywords: individual random effects; spatial error correlation; spatial lag dependence; lagrange multiplier (LM) test; (robust) LM test individual random effects; spatial error correlation; spatial lag dependence; lagrange multiplier (LM) test; (robust) LM test
Show Figures

Figure 1

MDPI and ACS Style

He, M.; Lin, K.-P. Testing in a Random Effects Panel Data Model with Spatially Correlated Error Components and Spatially Lagged Dependent Variables. Econometrics 2015, 3, 761-796.

Show more citation formats Show less citations formats

Article Access Map by Country/Region

1
Only visits after 24 November 2015 are recorded.
Search more from Scilit
 
Search
Back to TopTop