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EC3SLS Estimator for a Simultaneous System of Spatial Autoregressive Equations with Random Effects

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  • Badi H. Baltagi
  • Ying Deng

Abstract

This article derives a 3SLS estimator for a simultaneous system of spatial autoregressive equations with random effects which can therefore handle endoegeneity, spatial lag dependence, heterogeneity as well as cross equation correlation. This is done by utilizing the Kelejian and Prucha (1998) and Lee (2003) type instruments from the cross-section spatial autoregressive literature and marrying them to the error components 3SLS estimator derived by Baltagi (1981) for a system of simultaneous panel data equations. Our Monte Carlo experiments indicate that, for the single equation spatial error components 2SLS estimators, there is a slight gain in efficiency when Lee (2003) type rather than Kelejian and Prucha (1998) instruments are used. However, there is not much difference in efficiency between these instruments for spatial error components 3SLS estimators.

Suggested Citation

  • Badi H. Baltagi & Ying Deng, 2015. "EC3SLS Estimator for a Simultaneous System of Spatial Autoregressive Equations with Random Effects," Econometric Reviews, Taylor & Francis Journals, vol. 34(6-10), pages 659-694, December.
    • Handle: RePEc:taf:emetrv:v:34:y:2015:i:6-10:p:659-694
    DOI: 10.1080/07474938.2014.956030
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    1. László Mátyás & Patrick Sevestre (ed.), 2008. "The Econometrics of Panel Data," Advanced Studies in Theoretical and Applied Econometrics, Springer, number 978-3-540-75892-1, July-Dece.
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    More about this item

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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