IDEAS home Printed from https://ideas.repec.org/a/gam/jecnmx/v3y2015i4p761-796d58512.html
   My bibliography  Save this article

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

Author

Listed:
  • Ming He

    (Department of Economics, University of Washington, Seattle, WA 98195, USA)

  • Kuan-Pin Lin

    (Department of Economics, Portland State University, Portland, OR 97201, USA)

Abstract

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.

Suggested Citation

  • Ming He & Kuan-Pin Lin, 2015. "Testing in a Random Effects Panel Data Model with Spatially Correlated Error Components and Spatially Lagged Dependent Variables," Econometrics, MDPI, vol. 3(4), pages 1-36, November.
    • Handle: RePEc:gam:jecnmx:v:3:y:2015:i:4:p:761-796:d:58512
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2225-1146/3/4/761/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2225-1146/3/4/761/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. He, Ming & Lin, Kuan-Pin, 2013. "Locally adjusted LM test for spatial dependence in fixed effects panel data models," Economics Letters, Elsevier, vol. 121(1), pages 59-63.
    2. Bera, Anil K. & Montes-Rojas, Gabriel & Sosa-Escudero, Walter, 2010. "General Specification Testing With Locally Misspecified Models," Econometric Theory, Cambridge University Press, vol. 26(6), pages 1838-1845, December.
    3. Nicolas DEBARSY (CERPE De Namur) & Cem ERTUR & James P. LeSAGE, 2010. "Interpreting Dynamic Space-Time Panel Data Models," LEO Working Papers / DR LEO 800, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    4. Kelejian, Harry H. & Prucha, Ingmar R., 2010. "Specification and estimation of spatial autoregressive models with autoregressive and heteroskedastic disturbances," Journal of Econometrics, Elsevier, vol. 157(1), pages 53-67, July.
    5. Benjamin Born & Jörg Breitung, 2011. "Simple regression‐based tests for spatial dependence," Econometrics Journal, Royal Economic Society, vol. 14(2), pages 330-342, July.
    6. 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.
    7. Magnus, Jan R., 1982. "Multivariate error components analysis of linear and nonlinear regression models by maximum likelihood," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 239-285, August.
    8. Bera, Anil K. & Sosa-Escudero, Walter & Yoon, Mann, 2001. "Tests for the error component model in the presence of local misspecification," Journal of Econometrics, Elsevier, vol. 101(1), pages 1-23, March.
    9. Yang, Zhenlin, 2010. "A robust LM test for spatial error components," Regional Science and Urban Economics, Elsevier, vol. 40(5), pages 299-310, September.
    10. Qu, Xi & Lee, Lung-fei, 2012. "LM tests for spatial correlation in spatial models with limited dependent variables," Regional Science and Urban Economics, Elsevier, vol. 42(3), pages 430-445.
    11. Baltagi, Badi H. & Song, Seuck Heun & Koh, Won, 2003. "Testing panel data regression models with spatial error correlation," Journal of Econometrics, Elsevier, vol. 117(1), pages 123-150, November.
    12. Baltagi, Badi H. & Liu, Long, 2008. "Testing for random effects and spatial lag dependence in panel data models," Statistics & Probability Letters, Elsevier, vol. 78(18), pages 3304-3306, December.
    13. Badi H. Baltagi & Peter Egger & Michael Pfaffermayr, 2013. "A Generalized Spatial Panel Data Model with Random Effects," Econometric Reviews, Taylor & Francis Journals, vol. 32(5-6), pages 650-685, August.
    14. Honda, Yuzo, 1991. "A standardized test for the error components model with the two-way layout," Economics Letters, Elsevier, vol. 37(2), pages 125-128, October.
    15. Bera, Anil K. & Montes-Rojas, Gabriel & Sosa-Escudero, Walter, 2009. "Testing under local misspecification and artificial regressions," Economics Letters, Elsevier, vol. 104(2), pages 66-68, August.
    16. Kapoor, Mudit & Kelejian, Harry H. & Prucha, Ingmar R., 2007. "Panel data models with spatially correlated error components," Journal of Econometrics, Elsevier, vol. 140(1), pages 97-130, September.
    17. Baltagi, Badi H. & Yang, Zhenlin, 2013. "Heteroskedasticity and non-normality robust LM tests for spatial dependence," Regional Science and Urban Economics, Elsevier, vol. 43(5), pages 725-739.
    18. 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.
    19. Bera, Anil K. & Yoon, Mann J., 1993. "Specification Testing with Locally Misspecified Alternatives," Econometric Theory, Cambridge University Press, vol. 9(4), pages 649-658, August.
    20. Debarsy, Nicolas & Ertur, Cem, 2010. "Testing for spatial autocorrelation in a fixed effects panel data model," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 453-470, November.
    21. Lee, Lung-fei & Yu, Jihai, 2010. "Estimation of spatial autoregressive panel data models with fixed effects," Journal of Econometrics, Elsevier, vol. 154(2), pages 165-185, February.
    22. Yuzo Honda, 1985. "Testing the Error Components Model with Non-Normal Disturbances," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(4), pages 681-690.
    23. Baltagi, Badi H. & Levin, Dan, 1992. "Cigarette taxation: Raising revenues and reducing consumption," Structural Change and Economic Dynamics, Elsevier, vol. 3(2), pages 321-335, December.
    24. Yang, Zhenlin, 2015. "LM tests of spatial dependence based on bootstrap critical values," Journal of Econometrics, Elsevier, vol. 185(1), pages 33-59.
    25. Lung‐fei Lee & Jihai Yu, 2012. "Spatial Panels: Random Components Versus Fixed Effects," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1369-1412, November.
    26. Badi H. Baltagi & Zhenlin Yang, 2013. "Standardized LM tests for spatial error dependence in linear or panel regressions," Econometrics Journal, Royal Economic Society, vol. 16(1), pages 103-134, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Diana Mitsova & Ann-Margaret Esnard & Alka Sapat & Betty S. Lai, 2018. "Socioeconomic vulnerability and electric power restoration timelines in Florida: the case of Hurricane Irma," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 94(2), pages 689-709, November.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anil K. Bera & Osman Doğan & Süleyman Taşpınar & Monalisa Sen, 2020. "Specification tests for spatial panel data models," Journal of Spatial Econometrics, Springer, vol. 1(1), pages 1-39, December.
    2. He, Ming & Lin, Kuan-Pin, 2015. "Testing spatial effects and random effects in a nested panel data model," Economics Letters, Elsevier, vol. 135(C), pages 85-91.
    3. Taşpınar, Süleyman & Doğan, Osman & Bera, Anil K., 2017. "GMM gradient tests for spatial dynamic panel data models," Regional Science and Urban Economics, Elsevier, vol. 65(C), pages 65-88.
    4. Roger Bivand & Giovanni Millo & Gianfranco Piras, 2021. "A Review of Software for Spatial Econometrics in R," Mathematics, MDPI, vol. 9(11), pages 1-40, June.
    5. repec:rri:wpaper:201303 is not listed on IDEAS
    6. Baltagi, Badi H. & Yang, Zhenlin, 2013. "Heteroskedasticity and non-normality robust LM tests for spatial dependence," Regional Science and Urban Economics, Elsevier, vol. 43(5), pages 725-739.
    7. Lee, Lung-fei & Yu, Jihai, 2010. "Some recent developments in spatial panel data models," Regional Science and Urban Economics, Elsevier, vol. 40(5), pages 255-271, September.
    8. Debarsy, Nicolas & Ertur, Cem, 2010. "Testing for spatial autocorrelation in a fixed effects panel data model," Regional Science and Urban Economics, Elsevier, vol. 40(6), pages 453-470, November.
    9. Taspinar, Suleyman & Dogan, Osman & Bera, Anil K., 2017. "GMM Gradient Tests for Spatial Dynamic Panel Data Models," MPRA Paper 82830, University Library of Munich, Germany.
    10. Harry H. Kelejian & Gianfranco Piras, 2013. "A J-Test for Panel Models with Fixed Effects, Spatial and Time," Working Papers Working Paper 2013-03, Regional Research Institute, West Virginia University.
    11. He, Ming & Lin, Kuan-Pin, 2013. "Locally adjusted LM test for spatial dependence in fixed effects panel data models," Economics Letters, Elsevier, vol. 121(1), pages 59-63.
    12. Badi H. Baltagi & Zhenlin Yang, 2013. "Standardized LM tests for spatial error dependence in linear or panel regressions," Econometrics Journal, Royal Economic Society, vol. 16(1), pages 103-134, February.
    13. Liu, Xiaodong & Prucha, Ingmar R., 2018. "A robust test for network generated dependence," Journal of Econometrics, Elsevier, vol. 207(1), pages 92-113.
    14. Alain Pirotte & Jesús Mur, 2017. "Neglected dynamics and spatial dependence on panel data: consequences for convergence of the usual static model estimators," Spatial Economic Analysis, Taylor & Francis Journals, vol. 12(2-3), pages 202-229, July.
    15. Su, Liangjun & Yang, Zhenlin, 2015. "QML estimation of dynamic panel data models with spatial errors," Journal of Econometrics, Elsevier, vol. 185(1), pages 230-258.
    16. Jieun Lee, 2022. "Testing Endogeneity of Spatial Weights Matrices in Spatial Dynamic Panel Data Models," Papers 2209.05563, arXiv.org.
    17. Millo, Giovanni, 2014. "Maximum likelihood estimation of spatially and serially correlated panels with random effects," Computational Statistics & Data Analysis, Elsevier, vol. 71(C), pages 914-933.
    18. Yang, Zhenlin, 2015. "LM tests of spatial dependence based on bootstrap critical values," Journal of Econometrics, Elsevier, vol. 185(1), pages 33-59.
    19. Badi H. Baltagi & Long Liu, 2015. "Testing for Spacial Lag and Spatial Error Dependence in a Fixed Effects Panel Data Model Using Double Length Artificial Regressions," Center for Policy Research Working Papers 183, Center for Policy Research, Maxwell School, Syracuse University.
    20. Piras, Gianfranco & Prucha, Ingmar R., 2014. "On the finite sample properties of pre-test estimators of spatial models," Regional Science and Urban Economics, Elsevier, vol. 46(C), pages 103-115.
    21. Zhenlin Yang, 2013. "LM Tests of Spatial Dependence Based on Bootstrap Critical Values," Working Papers 03-2013, Singapore Management University, School of Economics.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecnmx:v:3:y:2015:i:4:p:761-796:d:58512. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.