Specification Searches in Spatial Econometrics: The Relevance of Hendry's Methodology

Raymond J.G.M. Florax (), Hendrik Folmer and Sergio Rey ()
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Hendrik Folmer: Wageningen Agricultural University

Urban/Regional from EconWPA

Abstract: This paper brings together a number of new specification search strategies in spatial econometric modeling. In the literature, experimental results for several forward stepwise strategies aimed at remedying spatial dependence, have been reported. Essentially, these strategies boil down to the expansion of a spatial linear regression model with spatially lagged variables, conditional upon the results of misspecification tests. We investigate a Hendry-like specification strategy, starting from the spatial common factor model and subsequently reducing the number of spatially lagged variables on the basis of significance tests. The experimental simulations pertain to various small to large sample sizes, with spatial processes modeled on regular lattice surfaces. Our main conclusion is that the classical forward stepwise approach outperforms the Hendry strategy in terms of finding the true data generating process as well as in the observed accuracy of the estimators for spatial and non-spatial parameters. It also dominates concurrent forward stepwise strategies recently suggested in the literature.

Keywords: spatial econometrics; autocorrelation; pre-testing; specification strategy (search for similar items in EconPapers)
JEL-codes: C12 C13 C15 C52 R15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-pke
Date: 2002-02-08
Note: Type of Document - Latex; prepared on Linux; to print on PostScript; pages: 30 ; figures: included
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Journal Article: Specification searches in spatial econometrics: the relevance of Hendry's methodology (2003)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpur:0202001

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