The W Matrix in Network and Spatial Econometrics: Issues Relating to Specification and Estimation

27 Pages Posted: 18 Feb 2016

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: February 12, 2016

Abstract

Network and spatial econometric models commonly embody a so-called W matrix which defines the connectivity between nodes of a network. The reason for the existence of W is that it facilitates parsimonious parametrization of inter-nodal interaction which would otherwise be very difficult to achieve from a practical modelling perspective. The problem considered in this paper is the effect of misspecifying W. The paper demonstrates the effect in the context of two types of model, the dynamic spatial autoregressive panel model and the multilevel spatial autoregressive panel model, both of which include W as part of the model specification and use W in estimation. Monte Carlo results are presented showing the impact on bias and RMSE of misspecification of W. The paper highlights the need for careful attention to the correct structure of W in spatial econometric and network modelling.

Keywords: Networks, Multilevel Modelling, Fixed Effects, Dynamic Spatial Autoregressive Panel Model, Multilevel Spatial Autoregressive Panel Model

JEL Classification: C21, C31, R0

Suggested Citation

Corrado, Luisa and Fingleton, Bernard, The W Matrix in Network and Spatial Econometrics: Issues Relating to Specification and Estimation (February 12, 2016). CEIS Working Paper No. 369. Available at SSRN: https://ssrn.com/abstract=2731652 or http://dx.doi.org/10.2139/ssrn.2731652

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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