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
Citation
BALTAGI, Badi H. and YANG, Zhenlin.
Standardized LM tests for spatial error dependence in linear or panel regressions. (2013). Econometrics Journal. 16, (1), 103-134.
Available at: https://ink.library.smu.edu.sg/soe_research/2255
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1111/j.1368-423X.2012.00385.x