Where is the economics in spatial econometrics?

Luisa Corrado and Bernard Fingleton ()

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Spatial econometrics has been criticized by some economists because some model specifications have been driven by data-analytic considerations rather than having a firm foundation in economic theory. In particular this applies to the so-called W matrix, which is integral to the structure of endogenous and exogenous spatial lags, and to spatial error processes, and which are almost the sine qua non of spatial econometrics. Moreover it has been suggested that the significance of a spatially lagged dependent variable involving W may be misleading, since it may be simply picking up the effects of omitted spatially dependent variables, incorrectly suggesting the existence of a spillover mechanism. In this paper we review the theoretical and empirical rationale for network dependence and spatial externalities as embodied in spatially lagged variables, arguing that failing to acknowledge their presence at least leads to biased inference, can be a cause of inconsistent estimation, and leads to an incorrect understanding of true causal processes.

JEL-codes: O1 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2011-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (41)

Downloads: (external link)
http://eprints.lse.ac.uk/33581/ Open access version. (application/pdf)

Related works:
Journal Article: WHERE IS THE ECONOMICS IN SPATIAL ECONOMETRICS? (2012)
Working Paper: Where is the Economics in Spatial Econometrics? (2011)
Working Paper: Where is the economics in spatial econometrics? (2011)
Working Paper: Where is the Economics in Spatial Econometrics? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:33581

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