Document Type

Working Paper

Date

8-2012

Embargo Period

10-8-2012

Keywords

Bootstrap; Distributional misspecification; Group interaction; LM test; Moran’s I

Disciplines

Economics | Public Affairs, Public Policy and Public Administration

Description/Abstract

The robustness of the LM tests for spatial error dependence of Burridge (1980) and Born and Breitung (2011) for the linear regression model, and Anselin (1988) and Debarsy and Ertur (2010) for the panel regression model with random or fixed effects are examined. While all tests are asymptotically robust against distributional misspecification, their finite sample behavior may 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.

Source

local input

Creative Commons License

Creative Commons Attribution 3.0 License
This work is licensed under a Creative Commons Attribution 3.0 License.

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