This paper considers a simple test for the correct specification of linear spatial autoregressive models, assuming that the choice of the weight matrix is true. We derive the limiting distributions of the test under the null hypothesis of correct specification and a sequence of local alternatives. We show that the test is free of nuisance parameters asymptotically under the null and prove the consistency of our test. To improve the finite sample performance of our test, we also propose a residual-based wild bootstrap and justify its asymptotic validity. We conduct a small set of Monte Carlo simulations to investigate the finite sample properties of our tests. Finally, we apply the test to two empirical datasets: the vote cast and the economic growth rate. We reject the linear spatial autoregressive model in the vote cast example but fail to reject it in the economic growth rate example.
Generalized method of moments, Nonlinearity, Spatial autoregression, Spatial dependence, Specification test
Singapore Management University, School of Economics
City or Country
SU, Liangjun and QU, Xi.
Specification Test for Spatial Autoregressive Models. (2015). Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/1685
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