Luisa Corrado acknowledges the support of the Marie-Curie IE Fellowship 039326 and the Marie Curie Excellence Award 2007.
WHERE IS THE ECONOMICS IN SPATIAL ECONOMETRICS?*
Article first published online: 11 APR 2011
© 2011, Wiley Periodicals, Inc.
Journal of Regional Science
Volume 52, Issue 2, pages 210–239, May 2012
How to Cite
Corrado, L. and Fingleton, B. (2012), WHERE IS THE ECONOMICS IN SPATIAL ECONOMETRICS?. Journal of Regional Science, 52: 210–239. doi: 10.1111/j.1467-9787.2011.00726.x
- Issue published online: 19 APR 2012
- Article first published online: 11 APR 2011
- Received: July 2010; revised: November 2010; accepted: November 2010.
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 W 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 W 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.