Standardized LM Tests for Spatial Error Dependence in Linear or Panel Regressions

Badi Baltagi and Zhenlin Yang

No 11-2010, Working Papers from Singapore Management University, School of Economics

Abstract: The robustness of the LM tests for spatial error dependence of Burridge (1980) for the linear regression model and Anselin (1988) for the panel regression model are examined. While both tests are asymptotically robust against distributional misspecification, their finite sample behavior can be sensitive to the spatial layout. To overcome this shortcoming, standardized LM tests are suggested. Monte Carlo results show that the new tests possess good finite sample properties. An important observation made throughout this study is that the LM tests for spatial dependence need to be both mean and variance-adjusted for good finite sample performance to be achieved. The former is, however, often neglected in the literature.

Keywords: Distributional misspecification; Group interaction; LM test; Moran’s I Test; Robustness; Spatial panel models. (search for similar items in EconPapers)
JEL-codes: C23 C5 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2010-09
New Economics Papers: this item is included in nep-ecm, nep-sea and nep-ure
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Citations: View citations in EconPapers (3)

Published in SMU Economics and Statistics Working Paper Series

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Related works:
Journal Article: Standardized LM tests for spatial error dependence in linear or panel regressions (2013)
Working Paper: Standardized LM Tests for Spatial Error Dependence in Linear or Panel Regressions (2012)
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