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

He, M; Lin, K-P

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

He, M

Lin, K-P

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Publisher:: MDPI AG
Publication Type:: Journal Article
Citation:: Econometrics, 2015, 3 (4), pp. 761 - 796
Issue Date:: 2015-12

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Field	Value	Language
dc.contributor.author	He, M https://orcid.org/0000-0003-2663-9526	en_US
dc.contributor.author	Lin, K-P	en_US
dc.date.issued	2015-12	en_US
dc.identifier.citation	Econometrics, 2015, 3 (4), pp. 761 - 796	en_US
dc.identifier.issn	2225-1146	en_US
dc.identifier.uri	http://hdl.handle.net/10453/116306
dc.description.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.	en_US
dc.publisher	MDPI AG	en_US
dc.relation.ispartof	Econometrics	en_US
dc.relation.isbasedon	10.3390/econometrics3040761	en_US
dc.title	Testing in a Random Effects Panel Data Model with Spatially Correlated Error Components and Spatially Lagged Dependent Variables	en_US
dc.type	Journal Article
utslib.citation.volume	4	en_US
utslib.citation.volume	3	en_US
utslib.for	1403 Econometrics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	open_access
pubs.consider-herdc	false	en_US
pubs.issue	4	en_US
pubs.publication-status	Published	en_US
pubs.volume	3	en_US

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.

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http://hdl.handle.net/10453/116306