Cross-Section Spatial Regression Models

Abstract

This chapter provides a selective survey of specification issues in spatial econometrics. We first present the most commonly used spatial specifications in a cross-sectional setting in the form of linear regression models including a spatial lag and/or a spatial error term, heteroscedasticity or parameter instability. Second, we present a set of specification tests that allow checking deviations from a standard, that is, nonspatial, regression model. An important space is devoted to unidirectional, multidirectional, and robust LM tests as they only require the estimation of the model under the null. Because of the complex links between spatial autocorrelation and spatial heterogeneity, we give some attention to the specifications incorporating both aspects and to the associated specification tests.