WHERE IS THE ECONOMICS IN SPATIAL ECONOMETRICS?*

• DOI: 10.1111/j.1467-9787.2011.00726.x
• Publication Date: 2011-04-12T04:29:55Z
• Authors: Luisa Corrado; Bernard Fingleton
• Keywords: Spatial Econometrics; Sine qua non; Spillover effect; Instrumental variable; Externality; Causality

ABSTRACT Spatial econometrics has been criticized by some economists because model specifications have driven 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 structure of endogenous and exogenous spatial lags, error processes, are almost sine qua non econometrics. Moreover, it suggested that significance spatially lagged dependent variable involving may be misleading, since simply picking up effects omitted variables, incorrectly suggesting existence spillover mechanism. paper, we review theoretical empirical rationale for network dependence externalities as embodied arguing failing acknowledge their presence at least leads biased inference, can cause inconsistent estimation, an incorrect understanding true causal processes.