Where is the Economics in Spatial Econometrics?

30 Pages Posted: 21 Apr 2012

See all articles by Luisa Corrado

Luisa Corrado

University of Rome Tor Vergata Department of Economics and Finance

Bernard Fingleton

University of Cambridge - Department of Land Economy

Date Written: May 2012

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 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 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.

Suggested Citation

Corrado, Luisa and Fingleton, Bernard, Where is the Economics in Spatial Econometrics? (May 2012). Journal of Regional Science, Vol. 52, Issue 2, pp. 210-239, 2012. Available at SSRN: https://ssrn.com/abstract=2043366 or http://dx.doi.org/10.1111/j.1467-9787.2011.00726.x

Luisa Corrado (Contact Author)

University of Rome Tor Vergata Department of Economics and Finance ( email )

Via Columbia n.2
Rome, rome 00100
Italy

Bernard Fingleton

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

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