Publication Type

Journal Article

Version

publishedVersion

Publication Date

2-2013

Abstract

The robustness of the Lagrange Multiplier (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 Etur (2010) for the panel regression model with random or fixed effects are examined. While all tests are asymptotically robust against distributional mis‐specification, their finite sample behaviour 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.

Keywords

Distributional misspecification, Group interaction, LM test, Moran’s ITest, Robustness, Spatial panel models

Discipline

Econometrics

Research Areas

Econometrics

Publication

Econometrics Journal

Volume

16

Issue

1

First Page

103

Last Page

134

ISSN

1368-4221

Identifier

10.1111/j.1368-423X.2012.00385.x

Publisher

Wiley

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1111/j.1368-423X.2012.00385.x

Included in

Econometrics Commons

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