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Estimation of a SAR model with endogenous spatial weights constructed by bilateral variables

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  • Qu, Xi
  • Lee, Lung-fei
  • Yang, Chao
Abstract
This paper studies the estimation of a cross-sectional spatial autoregressive (SAR) model with spatial weights constructed by bilateral variables like the trade or investment between regions. We model the possible endogeneity in spatial weights due to the correlation between the error term in the SAR model and unobserved interactive fixed effects in bilateral variables. Using a control function approach, we propose two-stage estimation methods and establish their consistency and asymptotic normality. Finite sample properties are investigated by a Monte Carlo study. We further apply our method to an empirical study of interactions among different US industries through production networks.

Suggested Citation

  • Qu, Xi & Lee, Lung-fei & Yang, Chao, 2021. "Estimation of a SAR model with endogenous spatial weights constructed by bilateral variables," Journal of Econometrics, Elsevier, vol. 221(1), pages 180-197.
    • Handle: RePEc:eee:econom:v:221:y:2021:i:1:p:180-197
    DOI: 10.1016/j.jeconom.2020.05.011
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    3. Marko Mlikota, 2022. "Cross-Sectional Dynamics Under Network Structure: Theory and Macroeconomic Applications," Papers 2211.13610, arXiv.org, revised Sep 2024.
    4. Chen, Na & Jin, Xiu, 2023. "Cross-industry asset allocation with the spatial interaction on multiple risk transmission channels," The North American Journal of Economics and Finance, Elsevier, vol. 67(C).
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    7. Mahyudin Ahmad & Siong Hook Law, 2024. "Financial development, institutions, and economic growth nexus: A spatial econometrics analysis using geographical and institutional proximities," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 2699-2721, July.
    8. Huijuan Xiao & Sheng Bao & Jingzheng Ren & Zhenci Xu & Song Xue & Jianguo Liu, 2024. "Global transboundary synergies and trade-offs among Sustainable Development Goals from an integrated sustainability perspective," Nature Communications, Nature, vol. 15(1), pages 1-12, December.
    9. Rezgar FEIZI & Sahar AMIDI & Thais NUNEZ-ROCHA & Isabelle RABAUD, 2022. "Carbon Tax and Emissions Transfer: a Spatial Analysis," LEO Working Papers / DR LEO 2965, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    10. Mohamad Adfar & Patta Tope & Muchtar Lutfi, 2022. "Analysis of Resource Ownership of Small Medium Industry and Their Effect on Natural Disaster Preparedness in the Beach Area (Study on SMEs Food Industry Branch)," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 6(02), pages 146-156, February.

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    More about this item

    Keywords

    Spatial autoregressive model; Endogenous spatial weight matrix; Bilateral variables;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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