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Flexible dependence modeling using convex combinations of different types of connectivity structures

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  • Nicolas Debarsy

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • James Lesage

    (McCoy College of Business Administration Finance and Economics Department - Texas State University)

Abstract

There is a great deal of literature regarding use of non-geographically based connectivity matrices or combinations of geographic and non-geographic structures in spatial econometrics models. We explore alternative approaches for constructing convex combinations of different types of dependence between observations. ? as well as ? use convex combinations of different connectivity matrices to form a single weight matrix that can be used in conventional spatial regression estimation and inference. An example for the case of two weight matrices, W 1 , W 2 reflecting different types of dependence between a cross-section of regions, firms, individuals etc., located in space would be: W c = γ 1 W 1 + (1 − γ 1)W 2 , 0 ≤ γ 1 ≤ 1. The matrix W c reflects a convex combination of the two weight matrices, with the scalar parameter γ 1 indicating the relative importance assigned to each type of dependence. We explore issues that arise in producing estimates and inferences from these more general cross-sectional regression relationships in a Bayesian framework. We propose two procedures to estimate such models and assess their finite sample properties through Monte Carlo experiments. We illustrate our methodology in an application to CEO salaries for a sample of nursing homes located in Texas. Two types of weights are considered, one reflecting spatial proximity of nursing homes and the other peer group proximity, which arises from the salary benchmarking literature.

Suggested Citation

  • Nicolas Debarsy & James Lesage, 2018. "Flexible dependence modeling using convex combinations of different types of connectivity structures," Post-Print halshs-03319303, HAL.
    • Handle: RePEc:hal:journl:halshs-03319303
    DOI: 10.1016/j.regsciurbeco.2018.01.001
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03319303
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    Cited by:

    1. Lukas Dargel, 2021. "Revisiting estimation methods for spatial econometric interaction models," Journal of Spatial Econometrics, Springer, vol. 2(1), pages 1-41, December.
    2. Yuxue Sheng & James LeSage, 2021. "A spatial regression methodology for exploring the role of regional connectivity in knowledge production: Evidence from Chinese regions," Papers in Regional Science, Wiley Blackwell, vol. 100(4), pages 847-874, August.
    3. Reuvers, Hanno & Wijler, Etienne, 2024. "Sparse generalized Yule–Walker estimation for large spatio-temporal autoregressions with an application to NO2 satellite data," Journal of Econometrics, Elsevier, vol. 239(1).
    4. Weng, Chunfei & Huang, Jingong & Greenwood-Nimmo, Matthew, 2023. "The effect of clean energy investment on CO2 emissions: Insights from a Spatial Durbin Model," Energy Economics, Elsevier, vol. 126(C).
    5. Nicolas Debarsy & James P Lesage, 2019. "Using Convex Combinations of Spatial Weights in Spatial Autoregressive Models," Post-Print halshs-03509810, HAL.
    6. Michele Costola & Matteo Iacopini & Casper Wichers, 2023. "Bayesian SAR model with stochastic volatility and multiple time-varying weights," Papers 2310.17473, arXiv.org.
    7. Nikolas Kuschnig, 2022. "Bayesian spatial econometrics: a software architecture," Journal of Spatial Econometrics, Springer, vol. 3(1), pages 1-25, December.
    8. Amir B. Ferreira Neto, 2021. "The diffusion of cultural district laws across US States," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 67(1), pages 189-210, August.
    9. Nicolas DEBARSY & Cem ERTUR, 2016. "Interaction matrix selection in spatial econometrics with an application to growth theory," LEO Working Papers / DR LEO 2172, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    10. Chih, Yao-Yu & Demir, Firat & Hu, Chenghao & Liu, Junyi & Shen, Hewei, 2023. "A spatial analysis of local corruption on foreign direct investment: Evidence from Chinese cities," European Journal of Political Economy, Elsevier, vol. 79(C).
    11. Fingleton, Bernard & Szumilo, Nikodem, 2019. "Simulating the impact of transport infrastructure investment on wages: A dynamic spatial panel model approach," Regional Science and Urban Economics, Elsevier, vol. 75(C), pages 148-164.
    12. Nikolas Kuschnig, 2021. "Bayesian Spatial Econometrics and the Need for Software," Department of Economics Working Papers wuwp318, Vienna University of Economics and Business, Department of Economics.
    13. James Paul LeSage & Manfred M. Fischer, 2020. "Cross-sectional dependence model specifications in a static trade panel data setting," Journal of Geographical Systems, Springer, vol. 22(1), pages 5-46, January.
    14. Fischer, Manfred M. & LeSage, James P., 2018. "The role of socio-cultural factors in static trade panel models," Working Papers in Regional Science 2018/04, WU Vienna University of Economics and Business.
    15. Manfred M. Fischer & James P. LeSage, 2020. "Network dependence in multi-indexed data on international trade flows," Journal of Spatial Econometrics, Springer, vol. 1(1), pages 1-26, December.
    16. Cai, Zhengzheng & Zhu, Yanli & Han, Xiaoyi, 2022. "Bayesian analysis of spatial dynamic panel data model with convex combinations of different spatial weight matrices: A reparameterized approach," Economics Letters, Elsevier, vol. 217(C).
    17. James Paul LeSage, 2020. "Fast MCMC estimation of multiple W-matrix spatial regression models and Metropolis–Hastings Monte Carlo log-marginal likelihoods," Journal of Geographical Systems, Springer, vol. 22(1), pages 47-75, January.
    18. Dargel, Lukas, 2021. "Revisiting Estimation Methods for Spatial Econometric Interaction Models," TSE Working Papers 21-1192, Toulouse School of Economics (TSE).
    19. Nan, Shijing & Huo, Yuchen & You, Wanhai & Guo, Yawei, 2022. "Globalization spatial spillover effects and carbon emissions: What is the role of economic complexity?," Energy Economics, Elsevier, vol. 112(C).
    20. Zhu, Yanli & Yin, Li & Lu, Xueyan, 2024. "Peer effects with multifaceted network dependence structures in R&D investment decisions: Evidence from Chinese listed firms," Research in International Business and Finance, Elsevier, vol. 70(PA).
    21. Debarsy, Nicolas & Ertur, Cem, 2019. "Interaction matrix selection in spatial autoregressive models with an application to growth theory," Regional Science and Urban Economics, Elsevier, vol. 75(C), pages 49-69.
    22. Christian Glocker & Matteo Iacopini & Tam'as Krisztin & Philipp Piribauer, 2023. "A Bayesian Markov-switching SAR model for time-varying cross-price spillovers," Papers 2310.19557, arXiv.org.
    23. Piribauer, Philipp & Glocker, Christian & Krisztin, Tamás, 2023. "Beyond distance: The spatial relationships of European regional economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 155(C).
    24. Hanno Reuvers & Etienne Wijler, 2021. "Sparse Generalized Yule-Walker Estimation for Large Spatio-temporal Autoregressions with an Application to NO2 Satellite Data," Papers 2108.02864, arXiv.org, revised Dec 2021.
    25. Costola, Michele & Iacopini, Matteo & Wichers, Casper, 2023. "Bayesian SAR model with stochastic volatility and multiple time-varying weights," SAFE Working Paper Series 407, Leibniz Institute for Financial Research SAFE.

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    More about this item

    Keywords

    Spatial econometrics; Connectivity matrix; Salary benchmarking models; Markov Chain Monte Carlo estimation; Bayesian;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services

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