A Time-Space Dynamic Panel Data Model with Spatial Moving Average Errors

50 Pages Posted: 2 Jul 2018

See all articles by Badi H. Baltagi

Badi H. Baltagi

Syracuse University; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Bernard Fingleton

University of Cambridge - Department of Land Economy; University of Cambridge - Department of Land Economy

Alain Pirotte

ERMES (CNRS), Université Panthéon-Assas Paris II; INRETS-DEST

Abstract

This paper focuses on the estimation and predictive performance of several estimators for the time-space dynamic panel data model with Spatial Moving Average Random Effects (SMA-RE) structure of the disturbances. A dynamic spatial Generalized Moments (GM) estimator is proposed which combines the approaches proposed by Baltagi, Fingleton and Pirotte (2014) and Fingleton (2008). The main idea is to mix non-spatial and spatial instruments to obtain consistent estimates of the parameters.Then, a forecasting approach is proposed and a linear predictor is derived. Using Monte Carlo simulations, we compare the short-run and long-run effects and evaluate the predictive efficiencies of optimal and various suboptimal predictors using the Root Mean Square Error (RMSE) criterion. Last, our approach is illustrated by an application in geographical economics which studies the employment levels across 255 NUTS regions of the EU over the period 2001–2012, with the last two years reserved for prediction.

Keywords: panel data, spatial lag, error components, time-space, dynamic, OLS, within, GM, spatial autocorrelation, direct and indirect effects, moving average, prediction, simulations, rook contiguity, interregional trade

JEL Classification: C23

Suggested Citation

Baltagi, Badi H. and Fingleton, Bernard and Fingleton, Bernard and Pirotte, Alain, A Time-Space Dynamic Panel Data Model with Spatial Moving Average Errors. IZA Discussion Paper No. 11587, Available at SSRN: https://ssrn.com/abstract=3205854 or http://dx.doi.org/10.2139/ssrn.3205854

Badi H. Baltagi (Contact Author)

Syracuse University ( email )

426 Eggers Hall
Syracuse, NY 13244-1020
United States
315-443-1630 (Phone)
315-443-1081 (Fax)

HOME PAGE: https://pbaltagi.wix.com/badibaltagi

CESifo (Center for Economic Studies and Ifo Institute) ( email )

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Munich, DE-81679
Germany

IZA Institute of Labor Economics

Schaumburg-Lippe-Str. 7 / 9
Bonn, D-53072
Germany

Bernard Fingleton

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

University of Cambridge - Department of Land Economy ( email )

19 Silver Street
Cambridge, CB3 9EP
United Kingdom

Alain Pirotte

ERMES (CNRS), Université Panthéon-Assas Paris II ( email )

12 Place du Panthéon
Paris, Cedex 5, 75005
France

INRETS-DEST

23 rue Alfred Nobel
Champs sur Marne, 77420
France

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