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A Solution for Absent Spatial Data: The Common Correlated Effects Estimator

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  • Michael Beenstock
  • Daniel Felsenstein

Abstract

Informed regional policy needs good regional data. As regional data series for key economic variables are generally absent whereas national-level time series data for the same variables are ubiquitous, we suggest an approach that leverages this advantage. We hypothesize the existence of a pervasive “common factor†represented by the national time series that affects regions differentially. We provide an empirical illustration in which national FDI is used in place of panel data for FDI, which are absent. The proposed methodology is tested empirically with respect to the determinants of regional demand for housing. We use a quasi-experimental approach to compare the results of a “common correlated effects†(CCE) estimator with a benchmark case when absent regional data are omitted. Using three common factors relating to national population, income and housing stock, we find mixed support for the common correlated effects hypothesis. We conclude by discussing how our experimental design may serve as a methodological prototype for further tests of CCE as a solution to the absent spatial data problem.

Suggested Citation

  • Michael Beenstock & Daniel Felsenstein, 2021. "A Solution for Absent Spatial Data: The Common Correlated Effects Estimator," International Regional Science Review, , vol. 44(3-4), pages 466-484, May.
    • Handle: RePEc:sae:inrsre:v:44:y:2021:i:3-4:p:466-484
    DOI: 10.1177/0160017620959132
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    References listed on IDEAS

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    1. Anindya Banerjee & Josep Lluís Carrion-i-Silvestre, 2017. "Testing for Panel Cointegration Using Common Correlated Effects Estimators," Journal of Time Series Analysis, Wiley Blackwell, vol. 38(4), pages 610-636, July.
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    3. Laura Resmini & Laura Casi, 2013. "Spatial complexity and interactions in regions' FDI attractiveness," ERSA conference papers ersa13p1063, European Regional Science Association.
    4. Michael Beenstock & Daniel Felsenstein, 2019. "The Econometric Analysis of Non-Stationary Spatial Panel Data," Advances in Spatial Science, Springer, number 978-3-030-03614-0, december.
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    7. Laura CASI & Laura RESMINI, 2010. "Evidence on the determinants of foreign direct investment: the case of EU regions," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 1, pages 93-118, December.
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