Small Sample Properties and Pretest Estimation of a Spatial Hausman–Taylor Model

Abstract

Purpose – This chapter considers a Hausman and Taylor (1981) panel data model that exhibits a Cliff and Ord (1973) spatial error structure.

Methodology/approach – We analyze the small sample properties of a generalized moments estimation approach for that model. This spatial Hausman–Taylor estimator allows for endogeneity of the time-varying and time-invariant variables with the individual effects. For this model, the spatial fixed effects estimator is known to be consistent, but its disadvantage is that it wipes out the effects of time-invariant variables which are important for most empirical studies.

Findings – Monte Carlo results show that the spatial Hausman–Taylor estimator performs well in small samples.

Citation

Baltagi, B.H., Egger, P.H. and Kesina, M. (2012), "Small Sample Properties and Pretest Estimation of a Spatial Hausman–Taylor Model", Baltagi, B.H., Carter Hill, R., Newey, W.K. and White, H.L. (Ed.) Essays in Honor of Jerry Hausman (Advances in Econometrics, Vol. 29), Emerald Group Publishing Limited, Leeds, pp. 215-236. https://doi.org/10.1108/S0731-9053(2012)0000029013