Spatial Econometric Models of Cross-Sectional Interdependence in Political Science Panel and Time-Series-Cross-Section Data

Posted: 12 Aug 2009

See all articles by Robert J. Franzese

Robert J. Franzese

University of Michigan

Jude C. Hays

University of Pittsburgh

Abstract

In this paper, we demonstrate the econometric consequences of different specification and estimation choices in the analysis of spatially interdependent data and show how to calculate and present spatial effect estimates substantively. We consider four common estimators-nonspatial OLS, spatial OLS, spatial 2SLS, and spatial ML. We examine analytically the respective omitted-variable and simultaneity biases of nonspatial OLS and spatial OLS in the simplest case and then evaluate the performance of all four estimators in bias, efficiency, and SE accuracy terms under more realistic conditions using Monte Carlo experiments. We provide empirical illustration, showing how to calculate and present spatial effect estimates effectively, using data on European governments' active labor market expenditures. Our main conclusions are that spatial OLS, despite its simultaneity, performs acceptably under low-to-moderate interdependence strength and reasonable sample dimensions. Spatial 2SLS or spatial ML may be advised for other conditions, but, unless interdependence is truly absent or minuscule, any of the spatial estimators unambiguously, and often dramatically, dominates on all three criteria the nonspatial OLS commonly used currently in empirical work in political science.

Suggested Citation

Franzese, Robert J. and Hays, Jude C., Spatial Econometric Models of Cross-Sectional Interdependence in Political Science Panel and Time-Series-Cross-Section Data. Political Analysis, Vol. 15, Issue 2, pp. 140-164, 2007, Available at SSRN: https://ssrn.com/abstract=1447745 or http://dx.doi.org/10.1093/pan/mpm005

Robert J. Franzese (Contact Author)

University of Michigan ( email )

Ann Arbor, MI 48109
United States
734-936-1850 (Phone)
734-764-3341 (Fax)

HOME PAGE: http://www-personal.umich.edu/~franzese/

Jude C. Hays

University of Pittsburgh ( email )

135 N Bellefield Ave
Pittsburgh, PA 15260
United States

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