Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171856
Authors: 
He, Ming
Lin, Kuan-Pin
Year of Publication: 
2015
Citation: 
[Journal:] Econometrics [ISSN:] 2225-1146 [Volume:] 3 [Year:] 2015 [Issue:] 4 [Pages:] 761-796
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.
Subjects: 
individual random effects
spatial error correlation
spatial lag dependence
lagrange multiplier (LM) test
(robust) LM test
JEL: 
C12
C21
C23
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article
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