Spatial fixed effects and spatial dependence in a single cross-section

We investigate the common conjecture in applied econometric work that the inclusion of spatial fixed effects in a regression specification for a single cross‐sectional data set removes spatial dependence. We demonstrate analytically and by means of a series of simulation experiments how evidence of...

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Published inPapers in regional science Vol. 92; no. 1; pp. 3 - 17
Main Authors Anselin, Luc, Arribas-Bel, Daniel
Format Journal Article
LanguageEnglish
Published Blackwell Publishing Ltd 01.03.2013
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Abstract We investigate the common conjecture in applied econometric work that the inclusion of spatial fixed effects in a regression specification for a single cross‐sectional data set removes spatial dependence. We demonstrate analytically and by means of a series of simulation experiments how evidence of the removal of spatial autocorrelation by spatial fixed effects may be spurious when the true data generating processes (DGP) takes the form of a spatial lag or spatial error dependence. In addition, we also show that spatial fixed effects correctly remove spatial correlation only in the special case where the dependence is group‐wise, with all observations in the same group as neighbours of each other. Resumen Se investiga la conjetura utilizada frecuentemente en econometría aplicada de que la inclusión de efectos fijos espaciales en una especificación de regresión para un único conjunto de datos transversales elimina la dependencia espacial. Demostramos analíticamente, y por medio de una serie de experimentos de simulación, cómo las pruebas de la eliminación de la autocorrelación espacial por efectos fijos espaciales pueden ser engañosas cuando los verdaderos procesos de generación de datos (DGP, siglas en inglés) consisten en un retardo espacial o una dependencia del error espacial. Además, mostramos también que los efectos fijos espaciales eliminan correctamente la correlación espacial sólo en el caso especial de que la dependencia sea en sentido grupal, en la que todas las observaciones del mismo grupo sean vecinas entre sí.
AbstractList We investigate the common conjecture in applied econometric work that the inclusion of spatial fixed effects in a regression specification for a single cross‐sectional data set removes spatial dependence. We demonstrate analytically and by means of a series of simulation experiments how evidence of the removal of spatial autocorrelation by spatial fixed effects may be spurious when the true data generating processes (DGP) takes the form of a spatial lag or spatial error dependence. In addition, we also show that spatial fixed effects correctly remove spatial correlation only in the special case where the dependence is group‐wise, with all observations in the same group as neighbours of each other. Resumen Se investiga la conjetura utilizada frecuentemente en econometría aplicada de que la inclusión de efectos fijos espaciales en una especificación de regresión para un único conjunto de datos transversales elimina la dependencia espacial. Demostramos analíticamente, y por medio de una serie de experimentos de simulación, cómo las pruebas de la eliminación de la autocorrelación espacial por efectos fijos espaciales pueden ser engañosas cuando los verdaderos procesos de generación de datos (DGP, siglas en inglés) consisten en un retardo espacial o una dependencia del error espacial. Además, mostramos también que los efectos fijos espaciales eliminan correctamente la correlación espacial sólo en el caso especial de que la dependencia sea en sentido grupal, en la que todas las observaciones del mismo grupo sean vecinas entre sí.
We investigate the common conjecture in applied econometric work that the inclusion of spatial fixed effects in a regression specification for a single cross-sectional data set removes spatial dependence. We demonstrate analytically and by means of a series of simulation experiments how evidence of the removal of spatial autocorrelation by spatial fixed effects may be spurious when the true data generating processes (DGP) takes the form of a spatial lag or spatial error dependence. In addition, we also show that spatial fixed effects correctly remove spatial correlation only in the special case where the dependence is group-wise, with all observations in the same group as neighbours of each other. // ABSTRACT IN : Se investiga la conjetura utilizada frecuentemente en econometría aplicada de que la inclusión de efectos fijos espaciales en una especificación de regresión para un único conjunto de datos transversales elimina la dependencia espacial. Demostramos analíticamente, y por medio de una serie de experimentos de simulación, cómo las pruebas de la eliminación de la autocorrelación espacial por efectos fijos espaciales pueden ser engañosas cuando los verdaderos procesos de generación de datos (DGP, siglas en inglés) consisten en un retardo espacial o una dependencia del error espacial. Además, mostramos también que los efectos fijos espaciales eliminan correctamente la correlación espacial sólo en el caso especial de que la dependencia sea en sentido grupal, en la que todas las observaciones del mismo grupo sean vecinas entre sí. Reprinted by permission of Blackwell Publihing
Author Arribas-Bel, Daniel
Anselin, Luc
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  surname: Arribas-Bel
  fullname: Arribas-Bel, Daniel
  email: darribas@feweb.vu.nl
  organization: GeoDa Center for Geospatial Analysis and Computation, Arizona State University, 84287-5302, Tempe, AZ, USA
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Notes We are grateful to acknowledge the many useful suggestions by Julia Koschinsky, David Folch, Pedro Amaral and the referees of Papers in Regional Science. David Folch developed the original architecture of the GeoDa Center spatial econometrics workbench upon which the current simulations were built. The research behind this paper was supported in part by US National Cancer Institute Grant 1R01CA126858-01A1. The content is solely the responsibility of the authors and does not necessarily represent the official views of the US National Cancer Institute, or the US National Institutes of Health.
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Kuminoff NV, Parmeter CF, Pope JC (2010) Which hedonic models can we trust to recover the marginal willingness to pay for environmental amenities? Journal of Environmental Economics and Management 60: 145-160
Lee L-F (2004) Asymptotic distributions of quasi-maximum likelihood estimators for spatial autoregressive models. Econometrica 72: 1899-1925
De Blasio G (2008) Urban-rural differences in internet usage, e-commerce, and e-banking: Evidence from Italy. Growth and Change 39: 341-367
Li J, Lee L-F (2009) Binary choice under social interactions: An empirical study with and without subjective data on expectations. Journal of Applied Econometrics 24: 257-281
Dalmazzo A, De Blasio G (2007b) Social returns to education in Italian local labor markets. The Annals of Regional Science 41: 51-69
Rey SJ, Anselin L (2007) PySAL, a python library of spatial analytical methods. The Review of Regional Studies 37: 5-27
Arbia G, Baltagi BH (2009) Spatial econometrics: Methods and applications. Physica-Verlag, Heidelberg
Baltagi BH, Pesaran MH (2007) Heterogeneity and cross section dependence in panel data models: Theory and applications. Journal of Applied Econometrics 22: 229-232
Case AC (1991) Spatial patterns in household demand. Econometrica 59: 953-965
Smith TE (2009) Estimation bias in spatial models with strongly connected weight matrices. Geographical Analysis 41: 307-332
Baltagi BH, Liu L (2010) Spurious spatial regression with equal weights. Statistics and Probability Letters 80: 1640-1642
Martellosio F (2011) Nontestability of equal weights spatial dependence. Econometric Theory 27: 1369-1375
Kelejian HH, Prucha IR (2010) Specification and estimation of spatial autoregressive models with autoregressive and heteroscedastic disturbances. Journal of Econometrics 157: 53-67
Baltagi BH, Kelejian HH, Prucha IR (2007) Analysis of spatially dependent data. Journal of Econometrics 140: 1-4
Kelejian HH, Prucha IR (2007) HAC estimation in a spatial framework. Journal of Econometrics 140: 131-154
Anselin L (1988) Spatial econometrics: Methods and models. Kluwer Academic Publishers, Dordrecht
Pope J (2008b) Fear of crime and housing prices: Household reactions to sex offender registries. Journal of Urban Economics 64: 601-614
Anselin L (1990) Spatial dependence and spatial structural instability in applied regression analysis. Journal of Regional Science 30: 185-207
Beron K, Murdoch J, Thayer M (2001) The benefits of visibility improvement: New evidence from the Los Angeles metropolitan area. Journal of Real Estate Finance and Economics 22: 319-337
McMillen DP (2010) Issues in spatial data analysis. Journal of Regional Science 50: 119-141
Horsch E, Lewis D (2009) The effect of aquatic invasive species on property values: Evidence from a quasi-experiment. Land Economics 85: 391-409
Moulton BR (1990) An illustration of a pitfall in estimating the effects of aggregate variables on micro units. The Review of Economics and Statistics 72: 334-338
Lee L-F (2007) GMM and 2SLS estimation of mixed regressive, spatial autoregressive models. Journal of Econometrics 137: 489-514
LeSage JP, Pace RK (2009) Introduction to spatial econometrics. CRC Press, Boca Raton, FL
Ciccone A (2002) Agglomeration effects in Europe. European Economic Review 46: 213-227
Kelejian HH, Prucha IR (2002) 2SLS and OLS in a spatial autoregressive model with equal spatial weights. Regional Science and Urban Economics 32: 691-707
1990; 30
2009; 24
2009; 85
2009; 41
2002; 18
1991; 59
2007; 140
1993; 60
2002; 32
2008; 39
2008b; 64
2009
2008
2006
2005
2004
1999; 40
2001; 22
2012; 14
2010; 80
1975; 70
1979
2008a; 84
2007; 37
2010; 60
2010; 89
2007; 137
2007b; 41
1998; 17
2004; 72
2006; 46
2006; 22
2002; 46
2010; 157
2007a; 20
2003; 26
2001; 59
1999; 92
2011; 49
2011; 27
2007; 22
1992; 22
2009; 104
2003; 22
2010; 50
1988
1990; 72
Rey (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0048) 2007; 37
Kelejian (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0027) 2007; 140
Kelejian (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0029) 2006; 46
Arbia (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0005) 2009
Lee (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0033) 2002; 18
Baltagi (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0006) 2006; 22
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Tobler (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0051) 1979
Ciccone (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0016) 2002; 46
McMillen (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0042) 2010; 50
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Kelejian (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0026) 2002; 32
Koschinsky (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0030) 2012; 14
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Anselin (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0002) 1990; 30
Kelejian (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0028) 2010; 157
Kelejian (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0025) 1999; 40
Dalmazzo (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0018) 2007; 20
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Beron (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0012) 2001; 22
Case (10.1111/j.1435-5957.2012.00480.x_pirs480-bib-0015) 1992; 22
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Snippet We investigate the common conjecture in applied econometric work that the inclusion of spatial fixed effects in a regression specification for a single...
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SubjectTerms C21
C31
Correlation
Cross-sectional analysis
Econometrics
Error
R15
Social regression
Spatial analysis
spatial autocorrelation
Spatial econometrics
spatial externalities
spatial fixed effects
spatial interaction
spatial weights
Title Spatial fixed effects and spatial dependence in a single cross-section
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Volume 92
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