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https://doi.org/10.18335/region.v8i1.316
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The bias of avoiding spatial dynamic panel models: A tale of two research teams
[journal article]
Abstract Many questions in urban and regional economics can be characterized as including both a spatial and a time dimension. However, often one of these dimensions is neglected in empirical work. This paper highlights the danger of methodological inertia, investigating the effect of neglecting the spatial ... view more
Many questions in urban and regional economics can be characterized as including both a spatial and a time dimension. However, often one of these dimensions is neglected in empirical work. This paper highlights the danger of methodological inertia, investigating the effect of neglecting the spatial or the time dimension when in fact both are important. A tale of two research teams, one living in a purely dynamic and the other in a purely spatial world of thinking, sets the scene. Because the researcher teams' choices to omit a dimension change the assumed optimal estimation strategies, the issue is more difficult to analyze than a typical omitted variables problem. First, the bias of omitting a relevant dimension is approximated analytically. Second, Monte Carlo simulations show that the neglected dimension projects onto the other, with potentially disastrous results. Interestingly, dynamic models are bound to overestimate autoregressive behavior whenever the spatial dimension is important. The same holds true for the opposite case. An application using the well-known, openly available cigarette demand data supports these findings.... view less
Classification
Political Economy
Free Keywords
Spatial dynamic panel data; Monte Carlo simulation; Spatial interaction; Dynamic model; Omitted variable bias
Document language
English
Publication Year
2021
Page/Pages
p. 153-180
Journal
Region: the journal of ERSA, 8 (2021) 1
ISSN
2409-5370
Status
Published Version; peer reviewed