Economics at your fingertips  

Estimation and inference in heterogeneous spatial panels with a multifactor error structure

Jia Chen, Yongcheol Shin () and Chaowen Zheng

Journal of Econometrics, 2022, vol. 229, issue 1, 55-79

Abstract: We develop a unifying econometric framework for the analysis of heterogeneous panel data models that can account for both spatial dependence and common factors. To tackle the challenging issues of endogeneity due to the spatial lagged term and the correlation between the regressors and factors, we propose the CCEX-IV estimation procedure that approximates factors by the cross-section averages of regressors and deals with the spatial endogeneity using the internal instrumental variables. We develop the individual and Mean Group estimators, and establish their consistency and asymptotic normality. By contrast, the Pooled estimator is shown to be inconsistent in the presence of parameter heterogeneity. Monte Carlo simulations confirm that the finite sample performance of the proposed estimators is quite satisfactory. We demonstrate the usefulness of our approach with an application to the house price growth for Local Authority Districts in the UK over 1997Q1–2016Q4.

Keywords: Spatial dependence and heterogeneity; Unobserved common factors; CCEX-IV estimation; The UK house price growth; GCM analysis (search for similar items in EconPapers)
JEL-codes: C13 C15 C23 R30 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.jeconom.2021.05.003

Access Statistics for this article

Journal of Econometrics is currently edited by T. Amemiya, A. R. Gallant, J. F. Geweke, C. Hsiao and P. M. Robinson

More articles in Journal of Econometrics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2022-07-25
Handle: RePEc:eee:econom:v:229:y:2022:i:1:p:55-79