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Where is the economics in spatial econometrics?

Fingleton, B. and Corrado, L. (2011) Where is the economics in spatial econometrics? Journal of Regional Science. ISSN 0022-4146

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Abstract

Spatial econometrics has been criticized by some economists because some model specifications have been driven by data-analytic considerations rather than having a firm foundation in economic theory. In particular, this applies to the so-called W matrix, which is integral to the structure of endogenous and exogenous spatial lags, and to spatial error processes, and which are almost the sine qua non of spatial econometrics. Moreover, it has been suggested that the significance of a spatially lagged dependent variable involving W may be misleading, since it may be simply picking up the effects of omitted spatially dependent variables, incorrectly suggesting the existence of a spillover mechanism. In this paper, we review the theoretical and empirical rationale for network dependence and spatial externalities as embodied in spatially lagged variables, arguing that failing to acknowledge their presence at least leads to biased inference, can be a cause of inconsistent estimation, and leads to an incorrect understanding of true causal processes.

Item type: Article
ID code: 28239
Keywords: econometrics, spatial econometrics, Economic Theory, Development, Environmental Science (miscellaneous)
Subjects: Social Sciences > Economic Theory
Department: Strathclyde Business School > Economics
Related URLs:
Depositing user: Miss Jenna Wright
Date Deposited: 14 Oct 2010 15:40
Last modified: 27 Mar 2014 08:53
URI: http://strathprints.strath.ac.uk/id/eprint/28239

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