Parameterizing Spatial Weight Matrices in Spatial Econometric Models

If you are interested in joining the seminar, please send an email to Daniel Haerle or Sacha den Nijs.

Abstract
The spatial weight matrix generally denoted by the symbol W, is an essential part of each spatial econometric model. To avoid the exogenous pre-specification of the W, using a direct approach with bias correction within a SDM model with both spatial and time-period fixed effects, we estimate the elements of the W together with other common parameters simultaneously. Besides, we allow different parameterization of W of different spatial lags in the SDM model. Further, our model allows different explanatory variables interacting with W whose parameterization is different. The performances of two common forms of W matrices with two general normalization methods are investigated in a Monte Carlo study. Finally, a data set used by Elhorst & Arbia (2010) studying the GDP growth and convergence is applied to evaluate the empirical performance of our approach.