Testing for heteroskedasticity and spatial correlation in a random effects panel data model

Badi H. Baltagi, Seuck Heun Song, Jae Hyeok Kwon

Research output: Contribution to journalArticle

15 Scopus citations

Abstract

A panel data regression model with heteroskedastic as well as spatially correlated disturbances is considered, and a joint LM test for homoskedasticity and no spatial correlation is derived. In addition, a conditional LM test for no spatial correlation given heteroskedasticity, as well as a conditional LM test for homoskedasticity given spatial correlation, are also derived. These LM tests are compared with marginal LM tests that ignore heteroskedasticity in testing for spatial correlation, or spatial correlation in testing for homoskedasticity. Monte Carlo results show that these LM tests, as well as their LR counterparts, perform well, even for small N and T. However, misleading inferences can occur when using marginal, rather than joint or conditional LM tests when spatial correlation or heteroskedasticity is present.

Original languageEnglish (US)
Pages (from-to)2897-2922
Number of pages26
JournalComputational Statistics and Data Analysis
Volume53
Issue number8
DOIs
StatePublished - Jun 15 2009

ASJC Scopus subject areas

  • Statistics and Probability
  • Computational Mathematics
  • Computational Theory and Mathematics
  • Applied Mathematics

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