European Business Schools Librarian's Group

Department of Economics Working Papers,
Vienna University of Economics and Business, Department of Economics

Fixed Effects and Random Effects Estimation of Higher-Order Spatial Autoregressive Models with Spatial Autoregressive and Heteroskedastic Disturbances

Harald Badinger () and Peter Egger ()
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Harald Badinger: Department of Economics, Vienna University of Economics and Business
Peter Egger: Department of Management, Technology and Economics at ETH Zürich

Abstract: This paper develops a unified framework for fixed and random effects estimation of higher-order spatial autoregressive panel data models with spatial autoregressive disturbances and heteroskedasticity of unknown form in the idiosyncratic error component. We derive the moment conditions and optimal weighting matrix without distributional assumptions for a generalized moments (GM) estimation procedure of the spatial autoregressive parameters of the disturbance process and define both a random effects and a fixed effects spatial generalized two-stage least squares estimator for the regression parameters of the model. We prove consistency of the proposed estimators and derive their joint asymptotic distribution, which is robust to heteroskedasticity of unknown form in the idiosyncratic error component. Finally, we derive a robust Hausman-test of the spatial random against the spatial fixed effects model.

Keywords: Higher-order spatial dependence, Generalized moments estimation, Heteroskedasticity, Two-stage least squares, Asymptotic statistics

JEL-codes: C13; C21; C23 April 2014

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