TY - JOUR
T1 - Testing panel data regression models with spatial error correlation
AU - Baltagi, Badi H.
AU - Song, Seuck Heun
AU - Koh, Won
N1 - Funding Information:
We would like to thank the associate editor and two referees for helpful comments. An earlier version of this paper was given at the North American Summer Meeting of the Econometric Society held at the University of Maryland, June, 2001. Also at UC-Berkeley, UC-San Diego and University of Southern California. Baltagi would like to thank the Bush School Program in the Economics of Public Policy. Also, we would like to thank the Korea Research Foundation Grant (KRF-2002–042-C00008) for its financial support.
PY - 2003/11
Y1 - 2003/11
N2 - This paper derives several lagrange multiplier (LM) tests for the panel data regression model with spatial error correlation. These tests draw upon two strands of earlier work. The first is the LM tests for the spatial error correlation model discussed in Anselin (Spatial Econometrics: Methods and Models, Kluwer Academic Publishers, Dordrecht; Rao's score test in spatial econometrics, J. Statist. Plann. Inference 97 (2001) 113) and Anselin et al. (Regional Sci. Urban Econom. 26 (1996) 77), and the second is the LM tests for the error component panel data model discussed in Breusch and Pagan (Rev. Econom. Stud. 47(1980) 239) and Baltagi et al. (J. Econometrics 54 (1992) 95). The idea is to allow for both spatial error correlation as well as random region effects in the panel data regression model and to test for their joint significance. Additionally, this paper derives conditional LM tests, which test for random regional effects given the presence of spatial error correlation. Also, spatial error correlation given the presence of random regional effects. These conditional LM tests are an alternative to the one-directional LM tests that test for random regional effects ignoring the presence of spatial error correlation or the one-directional LM tests for spatial error correlation ignoring the presence of random regional effects. We argue that these joint and conditional LM tests guard against possible misspecification. Extensive Monte Carlo experiments are conducted to study the performance of these LM tests as well as the corresponding likelihood ratio tests.
AB - This paper derives several lagrange multiplier (LM) tests for the panel data regression model with spatial error correlation. These tests draw upon two strands of earlier work. The first is the LM tests for the spatial error correlation model discussed in Anselin (Spatial Econometrics: Methods and Models, Kluwer Academic Publishers, Dordrecht; Rao's score test in spatial econometrics, J. Statist. Plann. Inference 97 (2001) 113) and Anselin et al. (Regional Sci. Urban Econom. 26 (1996) 77), and the second is the LM tests for the error component panel data model discussed in Breusch and Pagan (Rev. Econom. Stud. 47(1980) 239) and Baltagi et al. (J. Econometrics 54 (1992) 95). The idea is to allow for both spatial error correlation as well as random region effects in the panel data regression model and to test for their joint significance. Additionally, this paper derives conditional LM tests, which test for random regional effects given the presence of spatial error correlation. Also, spatial error correlation given the presence of random regional effects. These conditional LM tests are an alternative to the one-directional LM tests that test for random regional effects ignoring the presence of spatial error correlation or the one-directional LM tests for spatial error correlation ignoring the presence of random regional effects. We argue that these joint and conditional LM tests guard against possible misspecification. Extensive Monte Carlo experiments are conducted to study the performance of these LM tests as well as the corresponding likelihood ratio tests.
KW - Lagrange multiplier tests
KW - Likelihood ratio tests
KW - Panel data
KW - Spatial error correlation
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U2 - 10.1016/S0304-4076(03)00120-9
DO - 10.1016/S0304-4076(03)00120-9
M3 - Article
AN - SCOPUS:0347354938
SN - 0304-4076
VL - 117
SP - 123
EP - 150
JO - Journal of Econometrics
JF - Journal of Econometrics
IS - 1
ER -